Real estate investment trusts (REITs) are an excellent way to gain exposure to the property market. So why do Brits still choose to invest in buy-to-let?
There are numerous attractions, including:
- Full control over buying and selling the property.
- The ability to choose tenants, rents, and home improvements.
- The wide availability of buy-to-let mortgages to leverage returns.
- Protection from stock market volatility.
- The potential to capitalise on rising house prices.
Yet conditions have been getting tougher for buy-to-let investors in recent years. Reduced tax relief, rising mortgage rates, higher tenancy costs, and greater regulation have all made things more difficult.
And things could be about to get tougher for private landlords…
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Getting harder
Mortgage rates were set to be better in 2026 as inflationary pressures ease. But the Iran war has thrown a spanner in the works, and at least two Bank of England hikes are currently tipped for this year. Borrowing costs could spike for landlords.
That’s not the only problem facing buy-to-let investors. As I say, tighter regulation has also been a problem. And rumours are growing that the Chancellor is planning to stop private landlords from raising rents for one year as the Iran conflict hits household finances.
It’s just talk at the moment. Still, it’s another potential obstacle that would-be and existing landlords must consider.
Are REITs a better option?
My view on buy-to-let has been unchanged for years. I don’t like the upfront costs associated with buying rental property, or the day-to-day commitment of being a landlord. I also don’t like the idea of paying someone else to manage the property for me, not to mention maintenance costs that can be astronomical.
For me, investing in a REIT is far more attractive. I still get the same chance of receiving a steady stream of passive income, as buy-to-let landlords enjoy. REIT rules state at least 90% of annual rental profits must be paid out in dividends. That’s in exchange for juicy tax breaks.
I also don’t have to manage the property, and I can sell my holdings far more quickly and cheaply than a bricks-and-mortar property. Furthermore, REIT investors can invest in a far broader range of assets. I hold Primary Health Properties and Target Healthcare for instance. The benefit? They let me make money from the lucrative primary medical centre and care home sectors respectively.
A top trust to consider
But what about if investors just want to stick to residential property? I think Grainger (LSE:GRI) is a great trust to look at.
Down the years, it’s become one of the FTSE 250‘s greatest dividend growth shares. Since 2011, annual payouts have risen every year bar one. The exception was in 2021, when asset sales and pandemic pressures impacted group rental income and dividends.
What I especially like about Grainger is its enormous portfolio of 11,000+ homes. The advantage? It can still pay a reliable dividend even if some of its tenants don’t pay the rent or vacate. A buy-to-let investor with one or two properties may not have the same security.
Like any REIT, Grainger isn’t completely without risk. Higher interest rates will have a knock-on impact on its borrowing costs and therefore expansion plans. But given the choice to invest here or in buy-to-let? For me, it’s a no-brainer.
