Search the term buy-to-let and youll find lots of articles trumpeting a bearish view on the investment prospects of buy-to-let property. Its not often that we Fools agree on everything (were known for our Motley opinions), but we seem to be speaking with one voice when it comes to buy-to-let property.
What we dont like
We dont like the high execution costs of getting in and out of property. We dont like the illiquidity of the property market. We dont like the affordability of property compared to the average wage. We dont like the idea that base interest rates could rise from where they are now and choke off demand for property. We dont like the governments onerous tax regime surrounding buy-to-let property. We dont like the lack of investment diversity often necessary with buy-to-let property. We dont like the big bets people tend to take on one asset. We dont like the idea that the investment is geared because of mortgage finance. And we definitely dont like all the hassle that owning and renting out a property entails. You get the idea.
What we do like
Instead of buy-to-let, many Fools have been advocating that you buy shares in property-backed companies and funds. For example, well-known UK fund manager Neil Woodford has his funds holding shares in NewRiver REITand Regional REIT. Meanwhile, during 2019, Ive written articles taking a look at Sirius Real Estate, UK Commercial property REIT,London Metric Property, Palace Capital, Schroder European Real Estate Investment Trust, CareTech Holding, MedicX Fundand TR Property Investment Trust.
But I havent covered all the property-backed companies listed on the London stock exchange. For example, you could also look at RDI REIT, F&C Commercial Property Trust, Intu Properties, Primary Health Properties, Safestore Holdings, St. Mowden Properties, Tritax Big Box REIT, Workspace Group, Great Portland Estates, Land Securities Group, British Land Coand others.
Is property enough?
There are many property firms for you to research, but I think its also worth considering whether you want all your money invested in one sector property. With buy-to-let, you often dont have much choice about that because the investment is so large it can take all your funds to get it going. With shares, the situation is different. Id recommend investing at least 1,000 to make the execution costs of buying the shares worthwhile. But you could diversify across as many as 20 different shares or more and each one in a different sector, such as pharmaceuticals, retail, oil & gas, mining, finance, insurance, consumer goods and so on.
One neat solution that gets you well diversified across many companies and many sectors is to buy shares in a passive, low-cost index-tracking fund that follows the fortunes of an index such as the FTSE 100. The hassle-factor is at its lowest with such an investment, and youre likely to find the total returns from dividends and capital growth competitive, compared to constructing your own diversified portfolio of shares.
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