It’s no secret that property has generated impressive returns for many landlords over the last few years. However, buy-to-let is not the golden goose that it is often portrayed as being. The reality of it is long hours, dealing with tenants (or paying exorbitant fees to management companies), and having to be hands-on. In other words, it’s not the relaxed existence that some people think it is. Is there a better way to gain exposure to the market without having to go through the ordeal of actually managing a property?
As it turns out, there is. A real estate investment trust, or REIT, is a company that owns and operates a portfolio of properties. By buying shares of a REIT, you gain indirect exposure to its portfolio (and therefore, to the property sector as a whole). REITs are obligated by law to distribute 90% of their profits to shareholders, so you can be sure that a large proportion of the earnings are flowing through to you. Furthermore, they give the average investor an ability to gain exposure to a far more diverse number of properties than they would get by buying, say, a house or flat outright. Here are some REITs that I would consider investing in.
Everyone knows that the most important thing about property is location, location, location. West End-focused REIT Shaftesbury (LSE: SHB) ticks all the boxes in this respect. It owns mainly commercial properties in areas such as Covent Garden, Carnaby and Soho, which I believe is a no-lose proposition when one considers the historical attractiveness of an area like Central London.
I also think that Shaftesbury’s enviable position gives it relative insulation from the fallout of a potential no-deal Brexit. Let me explain. The UK property market has been skittish ever since the 2016 Brexit referendum. However, the UK domestic market is a zero-sum game — there are only so many places that money can go to, and in times of trouble it will flow from more risky investments to less risky ones. When it comes to investing, I believe that simpler is better, and nothing presents a simpler value proposition than property in Central London. And remember, Central London retail also benefits from the tourist boom, which has actually been helped by the pound’s fall on the back of Brexit.
If I want to add a little diversity to a real estate portfolio, then I would look no further than shares of Urban Logistics. This is a REIT that focuses on warehouses and storage facilities. It offers a very healthy dividend yield of 5.2%, which outstrips the average FTSE 100 yield of 4.5% by a considerable margin. Moreover, storage is a distinctly different sector to Shaftesbury-style commercial real estate: it is situated in areas that are relatively remote, it has much lower overheads costs and it has a different profit profile to other commercial spaces. That helps to give a portfolio diversity.
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Stepan Lavrouk owns no stocks 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.
Motley Fool UK 2019