Buy-to-let could be dead. Here are two alternative property investments I’d consider

Returns from buy-to-let property are falling. Rupert Hargreaves thinks investors should look elsewhere for income instead.

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Over the past few years, the government has introduced a range of new rules and regulations for buy-to-let investors to follow. These, coupled with booming house prices, have made it harder than ever for buy-to-let investors to make money from the asset class.

With this being the case, I think investors would do better to look to publicly-traded real estate investment trusts (REITs) instead of rental property if they want to invest in the sector. Today, I’m going to outline two REITs I think could be great alternatives. 

Office income

My first pick is office owner Regional REIT (LSE: RGL). As its name suggests, the company specialises in buying commercial property outside of London. Management is mainly focused on buying office buildings in areas where there’s a strong demand for such properties. Across its portfolio of 150 properties, it has 850 tenants, many of which are blue-chip businesses on 10-year-plus leases.

Regional’s tenant selection process is driven by its primary goal of generating income for shareholders from a diverse property portfolio. Since its launch in 2015, the dividend, which is paid quarterly, has risen from 7.7p to 8.3p. At the current share price, that gives a dividend yield of around 8%. On top of this, at the time of writing, the stock is trading around book value so you can buy the shares for the same price as the property portfolio is worth.

To help boost growth, the company recently completed a £62m fundraising, which was quickly snapped up by shareholders who were happy to support Regional’s growth plans.

So, all in all, you can get an 8% dividend yield from this diversified office owner without having to pay a premium to do so. I think you’d be hard-pressed to get the same kind of return from buy-to-let property in the current market.

Niche market

My second buy-to-let property alternative is healthcare REIT Assura (LSE: AGR). This business owns a portfolio of primary care medical facilities across the UK, giving it an income stream from an extremely defensive real estate portfolio in a growing market

People will always need to visit doctors, so there’ll always be a need for medical facilities. But the average investor can’t buy primary medical care facilities on their own and that’s why I think Assura is such an excellent investment. For around 75p, you can buy a share in this business and get a steady stream of income from medical facilities.

At the time of writing, the shares support a dividend yield of 3.8%. Over the past six years, the distribution has grown from 1.82p per share to 2.55p. And City analysts are forecasting a further 10% increase for the current financial year.

Assura’s dividend yield might be below the market average, but I think that’s a reflection of how secure this income stream is, and is a discount worth paying. That’s why I would consider this unique property business as an alternative to buy to let.

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.

Rupert Hargreaves owns shares in Regional REIT. 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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