Why I’d buy these 3 UK property shares for a passive income rather than buy-to-let

I’m interested in the property market to make a passive income. Here are three UK shares I’d buy to try to make big investment returns.

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.

Home key with house keyring with calculator.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Buy-to-let remains a very attractive investment class for many Britons. As does investing in UK shares that specialise in residential rentals. Looking at latest rent data from Zoopla it’s not difficult to see why.

A colossal shortage of these properties pushed the average private rent in Britain 4.6% higher year-on-year in September, Zoopla said. This represented a 13-year high. The property website said that supply of buy-to-let properties is currently running at 43% below the five-year average.

Zoopla expects private rents to rise 4.5% in 2022 too.

Why I’d ignore buy-to-let

Investing in buy-to-let used to be a lucrative way to get money working. And as the data above shows, rents in the UK continue to strengthen at breakneck pace. Residential property prices also continue to rocket, giving me the possibility of making big profits if, or when, I eventually decide to sell. Halifax data this week showed homes prices rising at their fastest pace for 15 years.

But I don’t believe that becoming a landlord is a good choice for me today. I’m reluctant to jump on the buy-to-let bandwagon because of the significant costs that landlords now face. It’s not just the 3% Stamp Duty levy introduced in 2016 that I’d have to worry about. The Tenant Fees Act introduced in 2019 has heaped more costs onto investors’ shoulders too.

Moreover, a swathe of new regulations related to improving property standards and safety are taking an extra bite out of landlord profits.

3 UK shares I’d rather buy

It’s my belief that things could get increasingly difficult for buy-to-let to make a profit too, as the government take steps to free up homes for first-time buyers. So I’d be happier to invest in UK shares, which would take the sting out of property rental for me. And there are stocks that can give me exposure to property rental.

The PRS REIT, Grainger and Residential Secure Income are three London stocks that specialise in letting out properties. Not only do they allow me to avoid the costs that buy-to-let investors have to face. Their scale means that investing in residential rentals is also much more cost effective.

On top of this, by buying these shares I don’t have to stump up colossal sums of money to get started. I don’t have to worry about Stamp Duty, property deposits, conveyancing fees and the like.

These UK property shares also give me a good chance to generate a decent passive income. Their forward dividend yields range from 1.9% at Grainger through to 5% at Residential Secure Income. The good thing about the PRS REIT and Residential Secure Income, too, is that they’re officially classified as real estate income trusts (or REITs). This means that they’re obligated to distribute at least 90% of annual profits to shareholders by way of dividends. 

Such stocks would help me exploit soaring UK rents and property prices without much of the cost and all of the effort that day-to-day property management entails. This is why I think buying them would be a no-brainer for me.

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.

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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »