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When it comes to investing in property, many Britons favour buy-to-let. This is understandable as this form of property is both easy to understand and tangible. There are plenty of other ways to make money from UK property however. And many investments can even be held inside a Stocks and Shares ISA.
An easy way to do it
One of the easiest ways to invest in property these days is via real estate investment trusts (REITs). These are companies that own different types of property assets (eg residential buildings, office buildings, hospitals, shopping centres, hotels, storage facilities, etc).
These companies trade on the stock market like regular stocks do. And they can usually be held inside a Stocks and Shares ISA or a SIPP, meaning that they can be far more tax-efficient than buy-to-let investments (where you typically pay Capital Gains Tax and Income Tax).
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Looking beyond the tax-efficiency, one big advantage of REITs is that they tend to be cash cows for investors. In the UK, regulations stipulate that they must pay out a large proportion of their rental income to investors so they often have very attractive yields.
Another advantage is that you can start investing with a very small amount of money. In theory, you could get started with just a few pounds.
A £1 REIT
An example of a REIT on the London Stock Exchange is Target Healthcare REIT (LSE: THRL). It invests in care homes across the UK and currently has around 100 properties in its portfolio.
At present, its shares cost just £1. So with £1,000, investors could pick up 1,000 shares (assuming zero trading commissions).
There are a number of things I like about this particular pick. One is that the long-term backdrop looks very supportive. In the UK, the number of people aged 85 or older is projected to balloon over the next 20 years. So demand for care homes should increase.
I also like that its rental contracts are very long term in nature. The latest trading update showed that the company had a weighted-average unexpired lease term of 26 years.
The yield on offer’s another great feature. Currently, it’s about 5.9%. That translates to annual income of around £60 on a £1,000 investment. On a £10,000 investment, it equates to annual income of around £600 (tax-free if held inside an ISA).
Another thing key point is that if UK interest rates continue to fall, REITs should benefit as the cost of servicing debt will decrease. This could lead to price gains and attractive total returns (share price gains plus income).
Income potential
Of course, if rates were to rise again, it would be bad news for REITs like Target Healthcare. In this scenario, share price losses could offset any income generated.
All things considered though, I like the set-up here. I believe this one is worth considering today for income.
