The property market attracts many people who aim to invest to fund their retirements. But buying and letting property comes with many set-up and ongoing costs. And once you’ve committed to the investment the period of holding can be hands-on. But if you invest in FTSE shares instead, there’s not much for you to do while you hold.
An attractive FTSE share in the property sector
The demands arising from a property lettings business can be many. And you really will have started a business if you own investment property. But that’s not the only ‘problem’. To me, the property market looks high right now because the stamp duty holiday has stoked up demand. This may not be the best time to buy a property to fund your retirement.
On top of that, there’s the challenge of diversification. For many, buying just one investment property represents a large commitment of funds. And if you can’t afford to invest in a second, third, or fourth, all your risk will be concentrated on one investment. If something goes wrong, you could find yourself in a financial hole.
Happily, you can gain diversification across many underlying properties by investing in the shares of a property company such as the FTSE 250’s CLS Holdings (LSE: CLI). The company owns and invests in ”well-located” office properties. And, by valuation, 50% of the portfolio is in the UK, 35% in Germany and 15% in France. Overall, the assets are worth around £2bn and the firm has more than 750 tenants “including blue-chip organisations and government departments.”
Today’s half-year results report reveals to us that net rental income increased by 5% compared to the figure a year ago. And the company collected 99% of rent due in the period, despite the coronavirus crisis. Post-period, around 95% of third-quarter rent is in the bank already. Indeed, the resilience of the business has enabled the directors to maintain the interim dividend at last year’s level.
One of the main attractions of the stock is the dividend yield, which is running near 3.6%. The company has a record of growing the dividend each year and may increase the full-year dividend. With a long-term investment in the share, you can plough your dividends back in to compound your returns. On top of that, the share price could rise because of re-valuation of the underlying properties and operational progress within the business.
A long-term approach to holding shares in FTSE property companies can deliver a similar financial outcome to holding property directly – but without all the hassle! You can even diversify further by investing in more than one property company, perhaps to cover different sub-sectors in the property market or different geographies.
However, I’d be inclined to diversify beyond the property sector as well by buying shares in other industries. Indeed, share ownership is a worthwhile alternative to owning property for building an investment pot to fund your retirement.
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Kevin Godbold has no position in any share 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.