Forget buy-to-let! I’d buy this property stock instead

Owning buy-to-let property has become increasingly difficult over the past few years, but there’s another way to invest in the asset class.

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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.

Buy-to-let property, as an asset class, has generated a considerable amount of money for investors over the past few decades. However, in recent years, the government has introduced a range of rules that have made it harder for landlords to make money from property.

The changes have increased the tax burden on landlords. Operating and maintaining a buy-to-let property has also become more expensive. These factors have constricted the profit margins available from rental property. As a result, buy-to-let property is unlikely to generate the sort of returns investors have seen in the past.

But this doesn’t mean investors should give up on the sector entirely. Indeed, there are a handful of public buy-to-let companies that may continue to yield attractive total returns over the long run.

Buy-to-let company investment

Residential Secure Income (LSE: RESI) specialises in buying rental properties. It works with housing associations and local authorities to help deliver the construction of new homes.

This is a booming market. Many local authorities cannot afford to invest in housing. However, Residential Secure Income has the connections and financing required to provide this cash. For example, earlier this month, the group agreed a 45-year £300m debt facility with the Universities Superannuation scheme to invest in buy-to-let property.

Soon after announcing this, the company acquired 39 shared-ownership homes for a total consideration of £3.5m. The properties are earmarked for key workers, such as the armed forces and emergency services personnel.

Following this deal, Residential Secure Income now owns 205 shared-ownership homes. This provides a steady stream of income for the real estate investment trust (REIT) alongside buy-to-let properties. 

Dividend income

Residential Secure Income was established with the core goal of providing a steady stream of income from a shared-ownership and buy-to-let property. With this in mind, management is targeting a 5p per year dividend payout. That suggests the stock offers a dividend of around 5.3% at the current price. Management plans to increase the distribution in line with inflation over the long run.

On top of this dividend potential, the buy-to-let property stock also looks cheap at current levels. Its net asset value at the end of 2019 was 107p. The current share price is just 95p. These figures suggest the stock is trading at a price-to-book (P/B) value of 0.9, a number that implies the shares offer a wide margin of safety at current levels.

All of the above suggests Residential Secure Income can provide high total returns in the years ahead. Its high dividend yield is extremely attractive, particularly in the current interest rate environment. As the income stream is secured against property, it also looks exceptionally sustainable.

As such, if you’re looking for a way to invest in buy-to-let property without needing to put down a large deposit, or manage the property yourself, acquiring a share in Residential Secure Income could be a good option.

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 considered so you should consider taking independent financial advice.

Rupert Hargreaves 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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