Buy-to-let investing can be a complicated, expensive and time-consuming process, where profits are far from guaranteed. I believe a better strategy is to buy real estate investment trusts. This way you get all the upside and income from property investment, without having to do any of the work yourself.
A single aim
Secure Income REIT (LSE: SIR) was founded with the sole objective of generating a steady double-digit annual return for investors from property.
The focus of the company is finding properties with tenants on ultra-long-term leases. The weighted average unexpired lease term in its portfolio is 22 years, with no break clauses. What’s more, over half of the leases in place with tenants have fixed annual rent uplifts of at least 2.8% per annum, with the rest linked to inflation.
Management has set out to create one of the best property businesses around and they are said to benefit more than most because they own more than 16% of the company. In other words, if they fail, they stand to lose a lot of money.
Management skin in the game, coupled with Secure Income’s robust property portfolio, are the primary reasons why I believe this real estate investment trust is a great alternative to buy-to-let property.
At the time of writing, the shares are trading just under net asset value per share of 382p, and support a dividend yield of 3%. This distribution is slightly lower than I’d like, but over the next two years, analysts think the payout will increase by 60%, giving a prospective dividend yield of 4.4%. And the prospects for dividend growth in the years after is also bright, with property lease income linked to inflation.
Along with Secure Income, I’m also attracted to the defensive qualities of Target Healthcare (LSE: THRL).
Much like Secure Income, Target is focused on inking long-term lease deals that guarantee income for extended periods. The trust’s speciality is purpose-built UK care homes. As there seems to be a constant stream of care home providers going out of business, this sector doesn’t have the best reputation for investor returns. However, the lack of social care facilities is one of the most significant problems facing the UK right now, and the government is currently working on many solutions to the problem. Whichever solution policymakers decide on, I reckon it’s highly likely the industry will see a boost in funding in the near term, which should improve its overall financial health.
Target only invests in modern care home facilities with multi-decade leases which, in my opinion, makes the company one of the most attractive investments in a troubled sector. With a dividend yield of 6% at the time of writing, it’s also highly attractive from an income perspective.
A net asset value of 106p at 30 September puts the 108p shares on a slight premium although, as my colleague Alan Oscroft has pointed out, this premium suggests investors believe that the market-beating dividend yield is here to stay.
Rupert Hargreaves owns no 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.