Forget buy-to-let! These property shares may be all you need for great returns

Models of houses on top of pound coins

Search the term ‘buy-to-let’ and you’ll find lots of articles trumpeting a bearish view on the investment prospects of buy-to-let property. It’s not often that we Fools agree on everything (we’re known for our ‘Motley’ opinions), but we seem to be speaking with one voice when it comes to buy-to-let property.

What we don’t like

We don’t like the high execution costs of getting in and out of property. We don’t like the illiquidity of the property market. We don’t like the affordability of property compared to the average wage. We don’t like the idea that base interest rates could rise from where they are now and choke off demand for property. We don’t like the government’s onerous tax regime surrounding buy-to-let property. We don’t like the lack of investment diversity often necessary with buy-to-let property. We don’t like the big bets people tend to take on one asset. We don’t like the idea that the investment is geared because of mortgage finance. And we definitely don’t 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 fund’s holding shares in NewRiver REIT and Regional REIT. Meanwhile, during 2019, I’ve written articles taking a look at Sirius Real Estate, UK Commercial property REITLondon Metric Property, Palace Capital, Schroder European Real Estate Investment Trust, CareTech Holding, MedicX Fund and TR Property Investment Trust. 

But I haven’t 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 Co and others.

Is property enough?

There are many property firms for you to research, but I think it’s also worth considering whether you want all your money invested in one sector – property. With buy-to-let, you often don’t 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. I’d 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 you’re 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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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co, Landsec, 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.

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