Forget buy-to-let! Here’s how I’d aim to make a million from FTSE 100 property stocks

I think the FTSE 100 (INDEXFTSE:UKX) has a number of property shares that could offer better risk/reward opportunities than buy-to-let.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While many investors may wish to gain exposure to the UK’s property market at the present time, doing so via the FTSE 100 could be a better idea than undertaking a buy-to-let. After all, tax changes to buy-to-let investments, as well as more onerous regulations, could mean that its risk/reward opportunity has deteriorated in the last few years.

By contrast, there are a number of FTSE 100 property stocks that could deliver high returns. Among them are housebuilders, as well as real estate investment trusts (REIT). Both categories of stocks could deliver high returns on low valuations.

Housebuilders

Housebuilders have continued to enjoy strong operating conditions in recent months. Demand for new homes has remained high – even though consumer confidence is low due to the uncertainty caused by Brexit. Although interest rate rises are expected over the medium term, the Bank of England retains a cautious stance on how quickly they will rise. This could provide continued strong operating conditions across the housebuilding sector over the coming years.

Despite their rising levels of profitability, FTSE 100 housebuilders such as Persimmon and Taylor Wimpey continue to trade on low valuations. For example, they both have price-to-earnings (P/E) ratios of 8 and yet are forecast to post positive net profit growth in the current year.

Certainly, there will be an uncertain period for housebuilders following the end of the government’s Help to Buy scheme. It has provided heightened demand for new homes, and has boosted profitability across the sector. But with it due to run until 2023, there could be continued high returns available for investors over the medium term.

REITs

Given the uncertain outlook for the UK economy at the present time, it is perhaps unsurprising that commercial property prices have come under pressure. While this trend may continue over the coming months, in the long run it could present an opportunity for long-term investors to capitalise on what may prove to be wide margins of safety.

FTSE 100 REITs such as British Land and Landsec could be obvious opportunities for investors to take advantage of low valuations in the commercial property sector. They trade on price-to-book (P/B) ratios of just 0.6 and 0.7 respectively, which suggests that they could deliver impressive returns in the long run.

Allied to this are dividend yields that stand at over 5% apiece. The two companies’ yields may in fact be higher than the yields that are available on buy-to-let properties following the rise in residential property prices in recent years. That’s especially the case when costs such as management fees and mortgage payments are deducted.

As such, from a value and income investing perspective, FTSE 100 REITs could deliver higher returns, as well as lower risks, than undertaking a buy-to-let. Alongside housebuilders, there are a range of opportunities within the FTSE 100 for investors seeking to invest in UK property.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of British Land Co, Landsec, Persimmon, and Taylor Wimpey. The Motley Fool UK has recommended British Land Co and Landsec. 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.

More on Investing Articles

Abstract bull climbing indicators on stock chart
Top Stocks

4 FTSE shares Fools think will lead the next bull market charge

Will shares in these FTSE-listed companies be among the biggest winners during the next market upturn? These Fools are confident!

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 Warren Buffett stock I’m buying now

Coca-Cola is the fourth-largest holding in Warren Buffett’s Berkshire Hathaway. I’ll explain why I’m following Buffett and buying more.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I bought 4,403 Lloyds shares in June and 4,856 in September. Here’s what they’re worth now

Harvey Jones thought he was bagging a FTSE 100 bargain when he bought Lloyds shares on two occasions last year.…

Read more »

Young woman holding up three fingers
Investing Articles

I’m itching to buy these 3 hidden FTSE gems in a Stocks and Shares ISA

Harvey Jones is keen to add these three FTSE 100 companies to his Stocks and Shares ISA before April. Only…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

How I’d try and turn just £1 a day into a fabulous £54,485 passive income for life

By investing small, regular sums in FTSE 100 shares I can potentially generate a huge passive income stream. It won't…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying under a dozen shares

Christopher Ruane explains why less could be more when it comes to building a share portfolio if he wants to…

Read more »

Investing Articles

Rolls-Royce shares are up over 1,000% since 2020! Am I too late to buy?

Rolls-Royce shares now cost over tenfold what they did in the firm's 2020 rights issue. Our writer thinks they may…

Read more »

Investing Articles

1 top UK growth stock for my tech portfolio in 2024

Up 30% in just one year, this growth stock looks positioned to continue on the path of substantial gains, according…

Read more »