However, increasing regulation directed at the sector coupled with slowing house price growth and new tax laws mean that rental property is no longer as attractive an investment proposition as it once was.

On top of these additional layers of complexity, after a decade of strong home price growth, the average house price in the UK is now £234,853, implying a wannabe buy-to-let investor will need around £93,000 to buy their first property with a 60% mortgage.

This high startup cost means that buy-to-let investing is now out of range for most investors. However, there are other ways you can profit from the rising demand for rental property across the UK.

A unique vehicle

The PRS Reit (LSE: PRSR) was set up to offer investors exposure to buy-to-let property without having to own buildings themselves.

PRS owns and operates a portfolio of rental properties across the UK. These are purpose-built dwellings that have been designed to offer renters the most bang for their buck. They are new builds with universal fixtures and fittings, so the operational costs tend to be much lower than the sort of properties independent landlords tend to own. 

What’s more, because these are new properties, maintenance costs are relatively low. 

PRS also offers its tenants multi-year tenancies, with the average occupancy currently around three years in length. It also builds the properties around schools to attract young families who are looking for security. 

By operating at scale, PRS can provide a better quality of accommodation for its tenants and better service as a landlord all at a lower cost than independent buy-to-let investors. The company is also insulated from many of the changes policymakers have proposed for the rental market in recent years.

These include the elimination of mortgage tax relief, which does not apply to companies, the possible introduction of three-year tenancies, and the introduction of rules to improve the energy efficiency of rental properties. 

Time to buy? 

PRS takes on the day-to-day management of its properties and returns excess capital to shareholders. City analysts believe the company will distribute 5p per share in dividends next year, giving a dividend yield of 5.6% on the current share price. 

The best part is, no extra effort is required to earn this income. PRS manages the properties and deals with all other costs and taxes. If you own the shares inside of ISA, there is no additional tax to pay on the dividend income received – unlike income from buy-to-let property, which is taxed at your marginal rate. 

And the best part is you can invest in PRS for less than £1. Shares in the real estate investment trust are currently changing hands at around 90p, which means you can start to earn an income from buy-to-let property today with just a few pounds of investment.

The post How I’d invest in buy-to-let property with just £5k today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

However, more recently, tax changes and the introduction of stricter lending criteria have provided further reasons for many buy-to-let landlords and aspiring landlords to wring their hands in frustration. The result? Figures from Shawbrook Bank show the proportion of buy-to-let mortgages completed by individual landlords has fallen from 68% in the first half of 2015 to 34% in the first half of 2018. Meanwhile, over the same period, the proportion completed by limited companies has doubled from 32% to 64%.

The sector remains attractive for those operators with scale and professionalism, but how can the rest of us profit? Well, there’s a dead easy way. We can buy shares in two real estate investment trusts that listed on the stock market last year: Residential Secure Income (LSE: RESI) and PRS REIT (LSE: PRSR). Once fully invested, the former is targeting a dividend yield of 5% a year and the latter a yield of at least 6%. Thereafter, both companies expect to increase their annual dividends broadly in line with inflation.

On offer right now

Residential Secure Income raised £300m in its initial public offering (IPO) and a further £250m early this year. It focuses mainly on retirement housing, and shared ownership housing, as well as leasing housing to local authorities for the vulnerable.

PRS REIT raised £250m in its IPO. Its focus is on newly-built rental homes, mainly for families, in areas near key centres of employment, with convenient access to transport infrastructure, and close to good primary schools.

I believe it’s worth buying both stocks, because together they provide good diversification across various residential housing sub-sectors. Furthermore, I believe they’re worth buying right now. This is because those target yields I mentioned earlier are based on their IPO share prices of 100p. Both stocks are currently below that level, meaning investors today are locking in higher initial yields than the targeted 5% and 6%.

Diversification

The beauty of the stock market is that you can diversify the sources of your income beyond residential housing. You could invest in a big, commercial property player like British Land, giving you exposure to offices and shops. This stock currently offers a prospective dividend yield of 5.6%. In addition, there are numerous companies specialising in niche sub-sectors of the property rental market. For example, Primary Health Properties concentrates exclusively on modern primary health facilities in the UK and Ireland. This stock currently offers a prospective dividend yield of 5%.

Furthermore, there’s no need to stick to property companies. Indeed, I would highly recommend diversifying across a range of industries and sectors. Right now, there are plenty of yields in excess of 5% available. Vodafone, Shell, HSBC, GlaxosmithKline, British American Tobacco, and United Utilities to name but a few.

Of course, dividends are not guaranteed. Sometimes a company may suspend or reduce its dividend for one reason or another. However, holding a diversified portfolio of stocks reduces the impact of any individual company cutting its payout. As such, diversification is the way I’d go.

The post These stock market buy-to-let investment companies offer 5%+ yields appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended British Land Co, HSBC Holdings, and 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.

As a result, buying listed property shares could be a sound move. They may provide greater liquidity, offer less risk and could even generate higher returns on an after-tax basis. With that in mind, here are two property stocks that could be worth a closer look in my opinion.

Continued progress

Releasing news on Friday was real estate investment trust (REIT) PRS REIT (LSE: PRSR). The company is focused on investing in new-build homes in the private rented sector. It released news that it has signed contracts on four new development sites. Two are being acquired immediately, while it has entered into forward contracts for the other two sites. The four sites are together expected to deliver a total of 464 new family rental homes for a gross development cost of £68.2m.

Once fully let, the sites are expected to yield around £4.2m per annum. Following the acquisition of the additional development sites, the company will have a total of 36 sites that are either completed of contracted. The estimated rental value of the sites is £28m per annum.

With the popularity of build-to-rent increasing, PRS REIT could have a bright long-term future. Interest rates are due to rise in the coming years, and this could price many people out of the property market. With a 4.8% dividend yield, the stock could offer impressive total returns.

Growth potential

Also offering an impressive outlook within the property sector is Tritax Big Box (LSE: BBOX). It is another REIT, and its focus on logistics and warehousing could provide it with a tailwind in the coming years. As online shopping grows in popularity, demand for well-located, large distribution centres is likely to rise. It could therefore benefit from increasing rents over the long term, which could provide rising dividend growth prospects.

With the company currently having a dividend yield of 4.5%, it may offer a stronger income return than many buy-to-let opportunities at the present time. It also has a strong track record of dividend growth, with shareholder payouts rising by 15% per annum over the last three years on a per share basis. Further dividend growth of 4.4% per annum is forecast over the next two years.

While a number of property segments, including residential, could experience challenges over the near term as investor sentiment remains weak, Tritax Big Box could offer relative stability. Its focus on the long-term and exposure to what could be a growing industry may provide it with significant growth catalyst in future. Since it trades only marginally higher than its net asset value at the present time, it could offer a margin of safety as well as capital growth potential.

The post Why bother with buy-to-let when you could own these 2 high-yielding property shares? appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Peter Stephens 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.

Prospective new investors should also bear in mind that buy-to-let investments can be incredibly time consuming and stressful. Personally, I think I spend enough time making sure my gas and electrical appliances work without worrying about someone else’s. There are also great risks involved, as lengthy void periods or tenants not paying rent could cause you to lose your property if you can’t cover the cost of your mortgage payments.

Residential REITs

However, there is another way to invest in residential property. Over the past two years, there have been a number of new UK residential real estate investment trusts (REITs) listing on the London Stock Exchange. These investment vehicles offer a quick and easy route to investing in residential property and enable shareholders to spread the risk across multiple investment properties.

The Residential Secure income REIT (LSE: RESI), which invests in a mix of shared ownership, market rental, functional and sub-market housing, gives shareholders exposure to UK house price movements combined with steady income streams derived from strong covenants and long leases.

The REIT, which debuted with its IPO in July 2017, seeks to deliver an inflation-linked target annual dividend of 5% and total returns in excess of 8% per annum, assuming RPI inflation of 2.5%. ReSI’s objective is to deliver long-term stable inflation-linked returns to its shareholders by acquiring high quality residential assets which comprise the stock of UK social housing providers.

With the £180m that the company has raised in its IPO, it has so far invested in 1,772 retirement residential units located across England, Scotland and Wales. These investments represent roughly £155m of the proceeds raised, which implies further acquisitions will be made as the company targets a 50% debt-to-asset ratio.

Build-to-rent

Elswhere, investors should also take a look at the PRS REIT (LSE: PRSR), which is particularly noteworthy because of its strategy of investing in newly constructed build-to-rent homes. Investing in newly-built private rented housing allows PRS to acquire new properties at a slight discount to the potential sale price on completion via forward funding of new developments.

As such, PRS is expected to earn a higher net initial yield when compared to purchasing existing housing stock. On the downside, however, operational risks may sometimes be greater due to potential construction problems and dilapidations, which could affect both rents and resale values.

PRS has completed just over 400 homes since June 2017 and has committed a further £437m for new developments, with around 1,300 new homes under construction. Under its current strategy, it will utilise roughly one-third of its equity to purchase completed assets, with the remainder used for forward fund developments within the REIT itself.

The company is targeting a 6% annual dividend yield and net total shareholder returns of at least 10% per annum, based on its IPO price of 100p.

The post Forget buy-to-let! These residential REITs target returns of 8% plus appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Jack Tang has no position in any 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.