I own a number of real estate investment trusts (REITs) currently as part of my holdings. These types of stocks are designed to return 90% of profit from income-yielding properties to shareholders. I believe they are perfect for boosting my passive income stream. Another REIT I’m considering adding to my holdings is PRS REIT (LSE:PRSR). Let’s take a closer look to see if buying the shares could boost my returns.

Rental properties

As a quick introduction, PRS is a REIT that focuses on providing quality rental homes for consumers in the private rental market. PRS was the first of its kind to target the rental market as an investment trust.

So what’s happening with PRS shares currently? Well, as I write, they’re trading for 100p. At this time last year, the stock was trading for 102p, which is a decline of 2% over a 12-month period. Recent macroeconomic headwinds have put pressure on the shares and stopped them from climbing, in my opinion.

Risks to consider

I have two main concerns with PRS. Firstly, it builds its own properties. Due to soaring inflation, the rising cost of materials, and the supply chain crisis, this could hinder performance and returns. Many house builders are contending with these challenges. Rising costs put pressure on profitability. Furthermore, the supply chain crisis is affecting completion dates and sales, or rentals, in PRS’ case.

Next, as with any stock I buy to boost my passive income stream, I must remember that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time to help conserve cash. In times of economic volatility, like now, this is more likely.

The bull case and what I’m doing now

So let’s take a look at some positives then. First off, I’m buoyed by PRS’ performance track record. I am aware that past performance is no guarantee of the future. However, looking back, I can see it has grown revenue and profit year on year for the past four years.

Next, I believe PRS could benefit from the current housing market in the UK. To provide some context, the demand for homes is outstripping supply. Due to this, as well as the tougher conditions to obtain a mortgage, many consumers turn to the rental sector. PRS could experience a surge in demand for its properties. In turn, this could boost performance and level of returns for potential investors like me.

For any stock that is designed to reward shareholders, I want to know what the dividend yield is. At current levels, PRS’ yield of 4% is enticing. This is in line with the FTSE 100 average yield of 3%-4%.

Finally, I can see that PRS shares also look decent value for money currently on a price-to-earnings ratio of just eight.

In conclusion, I believe PRS REIT is in a great position to boost my holdings. It operates in a burgeoning market with favourable conditions. Furthermore, the passive income opportunity is enticing. I plan on adding PRS shares to the other REITs in my portfolio.

The post Here’s 1 rental sector REIT that could boost returns! appeared first on The Twelfth Magpie.

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• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In order to boost my passive income, I am on the lookout for dividend stocks. One way I do this is by buying stocks known as real estate investment trusts (REITs) for my holdings. This is because REITs must pay 90% of profit they make from income-yielding property to shareholders. One REIT I believe could boost my returns is Custodian REIT (LSE:CREI). Here’s why.

Diverse REIT

As a quick introduction, Custodian is a REIT that focuses on multiple sectors of property across many towns and cities across the UK. These include industrial, commercial, office, and retail properties. The properties it owns and rents out help make it that rental income that is then paid to investors such as myself.

So what’s happening with Custodian shares currently? Well, as I write, they’re trading for 105p. At this time last year, the stock was trading for 94p, which is an 11% increase over a 12-month period.

Risks to note

I believe the biggest threat to any REIT currently is economic volatility and any recession that could occur. This is because when the economy is volatile, rental income, as well as demand for property, could be negatively affected. If this were to happen, Custodian’s performance and returns could be affected.

Next, as with any passive income stock, I must remember that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time. Dividends are usually cut to conserve cash and some of the causes can include financial difficulty, a recession, or a one-off event like a pandemic.

Why I like Custodian shares

So let’s take a look at the bull case then. Firstly, I like that Custodian’s property portfolio is diversified from a sector and geographical perspective. It has different types of income-yielding property in various locations throughout the country. I believe this will support performance and growth — if one location or sector slows, growth in another could offset it.

Next, Custodian shares offer a dividend yield of 6.3% at current levels. This is higher than the FTSE 100 and FTSE 250 averages of 3%-4% and 1.9%, respectively. Furthermore, the shares look decent value for money currently on a price-to-earnings ratio of just four.

Finally, although I understand past performance is not a guarantee of the future, I am buoyed by Custodian’s track record. Looking back, I can see it has recorded consistent revenue for the past four years and profit for the past three years. This level of sustained performance should support consistent returns.

In conclusion, I would add Custodian REIT shares to my holdings currently. I believe they would fit into my portfolio nicely along with the other REITs I own shares in. The dividend yield on offer, cheap share price, and the diverse nature of its operations help build my investment case.

The post Here’s 1 diverse REIT that could boost my passive income! appeared first on The Twelfth Magpie.

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• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has recommended Custodian REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As part of a diverse portfolio of stocks, I own shares in a number of real estate investment trusts (REITs). These provide me access to the property market without having to buy and manage property myself. I’m always looking to boost my holdings, so I want to see if Big Yellow Group REIT (LSE:BYG) could be one to add to my holdings. Let’s take a closer look.

Self-storage REIT

As a quick reminder, a REIT is an investment trust designed to make money from income-yielding property. As a rule, these types of investment trusts must return 90% of profits to shareholders. This is an attractive prospect for me as a passive income seeker.

As a quick introduction, Big Yellow Group is a REIT that specialises in self-storage solutions. In fact, it is now recognised as one of the largest firms of its type in the UK and has 103 locations throughout the UK.

So what’s happening with Big Yellow shares currently? Well, as I write, they’re trading for 1,413p. At this time last year, the stock was trading 5% higher, for 1,476p.

Risks to be wary of

Despite a great growth story, Big Yellow Group REIT now operates in a very intense and saturated market place. The rise of e-commerce as well demand for storage solutions in general has seen many businesses vying for the same customers and contracts from businesses. If any of its competitors could gain the edge on Big Yellow Group, its performance and returns could be negatively affected.

Next, I do note that after the stock market dip of March, Big Yellow shares are creeping closer towards all time highs once again. This is something I am always wary about due to the fact that negative news or trading could send the shares tumbling. This in turn could affect my investment if I added the shares to my portfolio.

The bull case and verdict

So let’s take a look at some positives then. I wanted to learn more about the self-storage market and demand for such services too. There are a number of self storage firms that operate as a REIT. I found The Self Storage Association UK Annual Industry Report for 2022 which made for positive reading. Some of the key headlines I gleaned were the fact that occupancy was up compared to 2021. Next, rental rates had increased too and operators had decreased discounts due to continued robust demand. Finally, industry annual turnover had increased by close to 5% which equated to nearly £1bn. Big Yellow is in a prime position to benefit from continued demand and this should boost performance and returns.

Let’s take a look at some fundamentals then. I noticed that Big Yellow shares look good value for money currently on a price-to-earnings ratio of just 4. In addition to this, the shares would boost my passive income stream offering a dividend yield of 3%. I am aware that dividends are never guaranteed, however.

Overall I like the look of Big Yellow Group REIT shares and would add them to my holdings. The current fundamentals are attractive. Furthermore, it seems the self storage market is a burgeoning one that could support future growth and returns too.

The post Should I buy this REIT to add to the others that pay me juicy dividends? appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I currently own shares in real estate investment trust (REIT) Primary Health Properties (LSE:PHP). Here’s why I’m thinking of buying more shares to boost my passive income stream.

Healthcare REIT

As a quick reminder, a REIT is a business designed specifically to yield income from property. It is legally mandated to return 90% of profits to its shareholders in the form of dividends.

Primary Health Properties specialises in the purchase, development, and ownership of healthcare premises throughout the UK and Ireland. An example of a primary healthcare facility is a GP’s surgery.

So what’s happening with Primary shares currently? As I write, they’re trading for 138p. At this time last year, the stock was trading for 154p, which is a 12% drop over a 12-month period. Macroeconomic headwinds have caused many shares to pull back in recent months, so this is not a concern for me currently.

REITs have risks

The first risk of any dividend stock is the fact that dividends are not guaranteed. They can be cancelled at the discretion of the business at any time. This can be due to dwindling performance or extreme events such as a pandemic. A prime example of this was the Covid-19 pandemic when many firms cancelled dividends to conserve cash.

In regard to Primary specifically, there has been a rise in virtual healthcare options in recent years. Could this offering mean fewer people going and see their GP? There is every chance of this. If this shift were to occur, Primary could experience weakened demand for its properties and operations. This could result in the levels of returns I hope to make being negatively affected.

The bull case and my verdict

Firstly, Primary shares look decent value for money on a price-to-earnings ratio of 14. The general consensus is that a ratio of below 15 represents good value for money.

Next, Primary’s dividend yield stands at an enticing 4.5% as I write. The FTSE 100 average yield is 3%-4%. As REITs are designed to return cash to shareholders, it is not uncommon to see index-beating yields.

So what about performance? After all, performance underpins dividend payments. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see Primary has consistently grown revenue and profit for the past four years. In this time, it has also continued to grow the size of its estate and number of properties.

Finally, I believe Primary has defensive attributes. Healthcare is a staple for all and nearly everyone is registered to a GP surgery here in the UK. Furthermore, resources in the UK are becoming stretched due to a growing and ageing population. This tells me the demand for healthcare services will only grow, meaning a REIT like Primary could benefit.

Overall I’m buoyed by the future of Primary Healthcare Properties. I only see the business growing and in turn, my returns increasing too. Not only will I hold my position, but I would add further shares too to increase my returns.

The post Here’s why I own this REIT for dividends and growth! appeared first on The Twelfth Magpie.

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• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Jabran Khan owns shares in Primary Health Properties. The Motley Fool UK has recommended Primary Health Properties. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Investing in real estate investment trusts (REITs) can be a great way to generate passive income. In the UK, REITs are required to distribute 90% of their property income profits to shareholders. As a result, they often tend to be cash cows for investors.

Here, I’m going to highlight two of my favourite UK REITs. I’d be comfortable buying both of these securities for my portfolio today with the aim of generating passive income.

An under-the-radar REIT with a 4.3% yield

Let’s start with Urban Logistics (LSE: SHED). It’s an under-the-radar real estate company that owns a portfolio of strategically located warehouses across the UK. These warehouses are let out to retailers and delivery companies. Tenants include Amazon and XPO.

The reason I like this REIT is that the market for retail warehouse space is absolutely booming right now due to the growth of online shopping. Retailers need warehouse space to store goods before they’re shipped out to consumers, and this is benefiting the companies that operate in this area, including Urban Logistics. Last year, a record 66m square feet of space was taken up in the UK, up 27% year on year.

The dividend yield here is certainly attractive. For the year ending 31 March 2022, analysts expect SHED to reward investors with a dividend of 7.6p per share. At the current share price, that equates to a prospective yield of around 4.3%. Not bad at all in today’s low-interest-rate environment.

The valuation on the stock is also attractive, in my view. At present, it has a forward-looking P/E ratio of about 19 using next year’s earnings forecast. That’s well below that of rival Tritax Big Box.

One risk to consider here is that the company sometimes needs to raise new capital to grow its portfolio. This can hit the share price in the short term. I’m comfortable with this risk, however. I think the key here is to take a long-term view and enjoy the dividend income along the way.

A FTSE 250 healthcare REIT

Another REIT I’d be happy to buy today for passive income is Primary Health Properties (LSE: PHP). It’s a FTSE 250 business that invests in healthcare properties such as GP surgeries. Its portfolio currently consists of around 520 properties across the UK and Ireland.

One reason I like this REIT is that a large chunk of its rental income is backed by the UK government. So, it’s unlikely to find itself in a situation where it’s unable to collect its rents. Another reason I’m bullish here is that the group looks set to benefit from the UK’s ageing population, which is likely to increase demand for healthcare.

PHP has a good long-term dividend track record and has increased its payout at a rate above inflation in recent years. For 2021, the group is expected to pay out 6.2p per share to investors. That translates to a prospective yield of around 4.3% at the current share price.

One risk here is the arrival of virtual healthcare services. This form of healthcare has become more popular during the pandemic due to the convenience it offers and it could potentially reduce the demand for physical GP surgeries going forward.

Overall, however, I think the risk/reward proposition here is attractive. With the stock trading on a P/E ratio of about 22 after a pullback, I see it as a buy.

The post 2 high-yielding REITs to buy for passive income appeared first on The Twelfth Magpie.

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• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares in Amazon and Tritax Big Box REIT. The Motley Fool UK has recommended Amazon, Primary Health Properties, and Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One way around this would be for me to load up on a few of the best real estate investment trusts. This would help to diversify my portfolio and may provide some protection against a correction or market crash. 

Reliable tenants

My first pick of the best real estate investment trusts to buy now is Primary Health Properties (LSE: PHP). This company owns purpose-built facilities which it leases out to GPs and government bodies. 

Unsurprisingly, rental income is about as predictable as it gets. Occupancy rates are also very high, at 99.6%. I can’t see this falling in the aftermath of the pandemic either. In fact, Covid-19 has served as a reminder of the importance of providing access to appropriate healthcare outside of hospitals.

Sure, PHP will never shoot the lights out. The share price has climbed a little under 50% since 2016. That’s clearly far less than I could have made elsewhere, highlighting arguably its biggest drawback.

Then again, massive gains aren’t the objective here. This is primarily a vehicle for protecting cash. It’s also a great income play. Right now, analysts have PHP yielding 3.7%. 

Hot property

Another option if I were looking for downside protection, at least in my view, is Tritax Eurobox (LSE: EBOX). If the name rings a bell, that’s because the much larger, UK-focused Tritax Big Box is currently knocking on the door of the FTSE 100. 

EBOX specialises in what might be regarded as ‘hot property’ at this point in time, namely warehouses. Thanks to the huge growth seen in e-commerce (and supported by the pandemic), retailers are crying out for more logistics space to hold their stock. This has helped send the share price more than 30% higher over the last year. 

Yes, an economic slowdown may put an end to this momentum as people tighten the purse strings. Even if this doesn’t happen, we could see more money being spent on experiences as opposed to possessions for a while.

However, I doubt this will hold back EBOX for long. And at around a £750m market cap, the company has a lot of space left to grow. The shares also yield 3.5%, as I type. 

Inflation-linked income

I think we can all agree that supermarkets are pretty defensive businesses. Since we all need to eat, it makes sense that cautious investors might want some exposure to this space.

If I didn’t want the hassle of picking a winner out from the pack, I could buy Supermarket Income REIT (LSE: SUPR). It aims to provide owners with inflation-linked income as well as capital appreciation over time. It does this by investing in omnichannel stores — large supermarkets that also operate as fulfilment centres for customers wanting home delivery and the option to click and collect. Its chief customers are the UK’s ‘big four’: market-leader Tesco, Sainsbury, Asda and Morrisons.

Will this approach deliver greater gains than investing in one of the companies mentioned above? Probably not. However, SUPR does boast a super forecast yield of 4.9%.

Like PHP and EBOX, I think this makes it one of the best real estate investment trusts to buy now. 

The post 3 of the best real estate investment trusts to buy now appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons, Primary Health Properties, Tesco, and Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As my Foolish colleague Malcolm Wheatley commented in his recent piece: “Inflation is a devastating destroyer of wealth and standards of living.” Strong words but he’s absolutely on the money.

Like Malcolm, I believe the best way to beat inflation is via the stock market. However, there are certain parts that could prove particularly good destinations for my cash.

Buy quality to beat inflation

I’m a big fan of quality stocks. These are companies that have strong brands, sound finances, consistent earnings, and big profit margins. On a geekier note, they also tend to be capital-light and able to generate great returns on the money they invest, otherwise known as Return on Capital Employed (ROCE). Let me explain.

Naturally, I want a business that produces a higher return than inflation. If prices jump by 10%, any stock generating the same ROCE (or worse) isn’t really doing anything. However, one generating a ROCE of 20% is still doing well for investors, under the circumstances.

I’m not the only one who thinks this is a good way to beat inflation. Biased he may, be but top UK money manager Terry Smith thinks stocks in the Fundsmith Equity fund have that quality tilt which should preserve (and eventually enhance) investors’ wealth. That said, there’s nothing to stop the actual value of these holdings from falling if investors head for the exits.

Grab some shiny stuff

Another way to beat inflation would be to have some exposure to precious metals. One obvious candidate here is gold. Historically, anything connected to the shiny stuff tends to do well in inflationary times because of its trusted ability to hold its value.

If stuffing a load of gold bars under the bed doesn’t appeal, UK investors have a number of options. In the FTSE 100, there’s producer Polymetal International. In the FTSE 250, there’s Centamin. If diversification was important, I could buy an exchange-traded fund (ETF) that holds the biggest miners around the world.

Another option would be to buy a passive fund that tracks the gold price. This might be the least risky option since it avoids any company-specific risks. That’s not to say it’ll always be a comfortable ride, of course, especially if interest rates rise. After all, gold doesn’t generate income on its own! 

Don’t forget real estate

Thanks to the growing desire to work from home, post-coronavirus, the UK property market has been in fine form in 2021. However, owning stocks that have links to real estate can also help investors beat inflation. 

Step forward REITs (Real Estate Investment Trusts). These are listed companies that generate income for holders from property. Although nothing can be guaranteed, this asset tends to increase in value when inflation rises because price increases are passed through in rental leases (assuming demand for property is there). 

As you might expect, there’s no shortage of options out there for UK investors. These can be invested in office space, healthcare buildings and retail units. Thanks to the huge and growing popularity of online shopping however, my favourite pick in this space is warehouse owner Tritax Big Box.

The post 3 ways to beat inflation with stocks appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Paul Summers owns shares in Fundsmith Equity. The Motley Fool UK has recommended Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tritax Big Box

First up is warehouse provider and FTSE 250 member Tritax Big Box (LSE: BBOX). With a portfolio value approaching £4bn, tenants include top tier stalwarts Next and Unilever as well as US giant Amazon. 

Thanks to Covid-19 showing yet again just how convenient/essential online shopping has become, I find it hard to be anything but bullish on Tritax’s share price over the long term. A looming recession may force many to tighten their purse strings temporarily, but the e-tail boom clearly has a lot further to go. 

And dividends? Right now, this real estate investment trust yields a chunky 5.1%, based on analyst estimates of a 6.72p per share payout in 2020. For context, only five companies in the FTSE 100 are yielding more (and I suspect one of these — BP — will need to cut at some point).   

Big cash returns, solid growth prospects: What’s not to like?

Primary Health Properties

The second real estate investment trust I think should remain a good pick for income investors, particularly after the last couple of months, is Primary Health Properties (LSE: PHP). As you may have guessed, this company invests in the freehold or long leasehold of primary healthcare facilities.

PHP’s portfolio currently consists of 510 properties, the vast majority of which are GP surgeries. Other assets are let out to NHS organisations, dentists and pharmacies. Importantly, nearly all of the rental income is backed by the government. This should give investors far more confidence that payouts will be maintained compared to elsewhere in the market.  

Unsurprisingly, a stampede for relatively ‘safe’ income havens means that the shares currently trade on a hefty premium to their net asset value. Notwithstanding this, I think buying now can still be justified based on the non-cyclical nature of its business. The likelihood that demand for healthcare will only grow due to an ageing UK population is also a big draw.

PHP currently yields 3.8%, which puts it roughly on par with a stock like Tesco. Speaking of which…

Supermarket Income REIT

The days of panic-buying toilet paper are long gone. However, the coronavirus crisis has still succeeded in highlighting just how defensive investing in the UK’s supermarkets can be. My third and final pick from this area is, therefore, Supermarket Income REIT (LSE: SUPR). 

The £500m trust rents out property to FTSE 100 titans Sainsbury’s, Morrisons and the aforementioned market-leader, Tesco. Walmart-owned Asda is also a tenant. 

In SUPR’s view, the fact that supermarket property yields have climbed in recent years is a reason to get involved. The trust aims to buy property in highly-populated residential areas, with strong transport links. An average lease of more than 15 years is also sought. Combined, these should give investors a stable source of income that rises with inflation.

SUPR is likely to return 5.8p per share in this financial year (ending June 30). Based on the current share price, this gives holders of this real estate investment trust a forecast yield of 5.4%. 

The post Want dividends? I like these top real estate investment trusts appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties and Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Of course, many people will simply consider this element of their wealth to be covered by the house they live in, which they will own outright once the mortgage is wiped. Others will want to take things further.

Today, I’m looking at a relatively fuss-free way of making extra cash from property.  Before doing so, however, it’s worth mentioning why this solution isn’t buy-to-let.

Whole lotta hassle

There are, of course, attractions to becoming a landlord. Rent received will cover (or go some way towards covering) the mortgage payments on the property that’s being let.

The fact that house prices gradually rise over time, albeit through a few inevitable market wobbles, also means the owner could/should benefit handsomely when they come to sell. Aside from this, tangible assets like an extra house or flat give some people peace of mind compared to numbers on a screen.

That said, the idea that becoming a landlord as an easy route to riches is most definitely flawed. As well as ongoing maintenance, tax considerations and legal hoops-a-plenty, those wanting to let a property need to be prepared for periods in which they may struggle to find a tenant. Owners must also have to contend with troublesome renters who don’t treat the flat or house with quite as much care as they would like.

Should the life of a landlord not be what you expected, it’s worth remembering that selling any property can also take a lot longer than you think. 

So, what’s the alternative? 

Here at the Fool UK, we think there’s a far less stressful way of getting exposure to this asset class beyond your own home. Real Estate Investment Trusts (REITs) are quoted companies that own and manage all sorts of commercial and residential property. Through buying into these companies, investors get a massive slice (usually a minimum of 90%) of the trust’s rental income.

Unlike the underlying properties, REITs are also liquid in that you can buy and sell them just like ordinary shares. A further benefit is that they allow investors to focus on niche areas of the market. 

If you think the demand for warehouses from companies like Amazon will continue growing, for example, then Tritax Big Box — which rents out such spaces — may be worth investigating further. It’s set to generate a yield of 4.8% for investors this year, based on the current share price.

If you suspect our tendency to hoard stuff isn’t going to disappear anytime soon, self-storage players Big Yellow or Safestore — yielding 2.8% and 2.2% respectively — could also be ideal additions to your portfolio. 

For those who prefer the passive approach, US giant iShares offers the UK Property UCITS ETF. For an ongoing charge of 0.4%, you can track the performance of an index composed purely of REITS and UK-listed real estate companies, the yield from which is currently 3.3%. 

Although nothing can be guaranteed — REITs have a tendency to be volatile during housing/general market downturns — these options should, in my opinion, be far more appealing to busy private investors.

The post Forget buy-to-let. I’d make money from property this way! appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Real estate investment trusts (REITs) provide significantly greater diversity than a buy-to-let, which could reduce risk for many landlords. They also offer wide margins of safety in many cases, while their income returns could be higher than a buy-to-let in many parts of the UK.

As such, now could be the right time to pivot from buy-to-lets to REITs, with the FTSE 100 and FTSE 250 offering a wide range of opportunities for long-term investors.

Diversity

Many buy-to-let investors have small portfolios. They may even contain just one property from which they aim to generate a passive income, or a retirement income. While this has proven to be a worthwhile means of generating a second income in the past, it could become more challenging in future.

Factors such as regulatory changes and uncertainty for parts of the UK economy may mean there are longer void periods, as well as a higher chance of rent failing to be paid on time, over the coming years.

As such, having a diverse portfolio could become increasingly important. With REITs, it’s possible to buy shares in one company that has exposure to a vast range of properties in a wide range of locations. Some REITs have exposure to retail, offices and residential, thereby further reducing their reliance on one sector. As a result, they could offer less risk than being a landlord.

Return potential

With house prices being high compared to incomes in many parts of the country, the potential for buy-to-let capital growth could be limited. Tax changes, such as a stamp duty surcharge, could mean the scope to produce the returns of the last decade are more limited over the coming years.

By contrast, a number of FTSE 350-listed REITs currently trade below net asset value. This means  investors have the opportunity to buy them while they appear to offer excellent value for money, with some large-cap REITs having price-to-book (P/B) ratios as low as 0.6. This means they could more than double in price and still trade below net asset value.

With there being REITs exposed to the fast-growing warehouse segment, which is benefitting from growing demand for deliveries from online retailing, there are also growth opportunities within the industry. In fact, their growth rate could be well ahead of house prices at a time when interest rate rises are forecast over the medium term.

Takeaway

Now could be the right time to refocus capital on REITs, rather than buy-to-let, within a Stocks and Shares ISA. Doing so could reduce risk through a higher degree of diversity, while offering an impressive return outlook as a result of their low valuations and long-term growth potential.

The post Forget buy-to-let! I’d aim to make £1m from property stocks in a Stocks and Shares ISA appeared first on The Twelfth Magpie.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.