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Buy-to-let costs are increasing! I’d rather buy this big-yielding property stock

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Unpacked boxes in new apartment
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Conditions are becoming tougher and tougher for buy-to-let investors. The rentals sector is becoming a bamboozling maze of rising costs and increased regulation, and anecdotal evidence suggests that many landlords were caught unawares by fresh legislation introduced just this week to improve energy efficiency that could set them back by thousands of pounds.

So serious is the latest round of legal changes that Charles Clarke, chairman of the Eastern Landlords Association, proclaimed in local newspaper the Eastern Daily Press that “it’s another nail in the coffin for the buy-to-let industry. Landlords face a big dilemma, costs can run into the thousands and as a result several people have already sold up as they’ve had enough.”

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And the move threatens to impact individuals with small property portfolios in particular, Clarke claiming that “if you’ve got one or two properties and aren’t running a company, the work is going to be too expensive for many people and a real trauma.”

A pukka property play

With buy-to-let becoming more expensive and increasingly complex, it’s a sector that’s best avoided, in my opinion. If you’re looking to get exposure to the property market, why not do this by investing in the stock market?

Take Big Yellow Group (LSE: BYG), for example. It’s a real estate investment trust (REIT) that’s going from strength to strength because Britons can’t stop buying and/or won’t throw out their old junk, and as a consequence don’t have enough space to store all of their possessions.

Despite the impact that the challenging economic and political environment is having on consumer spending power, this blend means that demand for Big Yellow’s self-storage pens continues to rise. In the three months to December like-for-like revenues rose by a healthy 6.4% to £31.5m, while underlying closing occupancy as of the end of 2018 rose by 2.4 percentage points year-on-year to 82.1%.

The trading outlook for the FTSE 250 firm can be considered pretty compelling and this is encouraging the business to pursue a programme of aggressive expansion. In the last quarter it received planning consents to develop its Battersea site and to build a new facility in Bracknell, while construction at its new stores in Manchester and Camberwell should start in summer 2019 and 2020 respectively.

A true income star

If you’re a dividend hunter then Big Yellow is a particularly-attractive pick right now too.

Under REIT rules, the company is expected to distribute at least nine-tenths of profits to shareholders in the form of dividends, and with earnings expected to rise by high single-digits through to the close of next year at least, these payouts are expected to keep rising at at a fair lick. A 35.6p per share dividend is predicted by City analysts for this year and a 38.2p reward for next year, figures that yield a chubby 3.6% and 3.8% respectively.

And I wouldn’t bet against profits and thus dividends continuing to surge many years into the future, and consequently believe it’s a much better investment than playing the buy-to-let market.

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Royston Wild 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.

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