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Forget buy-to-let, I’d buy shares in these property companies instead

While buy-to-let has been a relatively obvious choice for investors in the past, its appeal seems to be declining. An era of low interest rates could be coming to an end, with a tighter monetary policy forecast.

This could squeeze the cash flow of landlords at a time when rental growth may be limited by the UK’s economic uncertainty. And with house prices having the potential to fall depending on how the Brexit process moves ahead, being a landlord may become even less attractive.

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With that in mind, here are two property-related shares which could be of interest. They appear to offer improving prospects and could generate higher returns than buy-to-let in the long run. As such, they could be worth buying in my opinion.

Growth potential

Releasing an update on Friday was UK healthcare real estate investor Impact Healthcare (LSE: IHR). The real estate investment trust (REIT) updated investors on pipeline acquisitions. It had previously announced that it was in advanced negotiations to acquire an identified pipeline of attractive investment opportunities which included a portfolio of UK care homes with over 2,500 beds.

However, it has now decided not to exchange contracts on the portfolio of assets during 2018. It will therefore not require an equity fundraising prior to the year end. It will, though, remain in discussions with the vendors of the portfolio and with other vendors of other attractive investment opportunities. It therefore expects to raise equity capital at some point in 2019.

The prospects for Impact Healthcare appear to be generally positive. An ageing population and increasing spending on the healthcare sector could lead to a tailwind for the industry in future. With the stock offering a relatively resilient outlook and a price-to-book (P/B) ratio of around 1, it could offer investment appeal for the long run in my opinion.

Total returns

The prospects for another REIT, Big Yellow Group (LSE: BYG), may also be relatively impressive. It has a dominant position in the self-storage sector, and this could provide it with a competitive advantage in terms of cost base and customer loyalty. It has relatively attractive locations, and its strategy suggests that further growth could be ahead over the long run.

The stock has experienced a period of volatility in recent months – in line with other FTSE 250 stocks which have a UK focus during the same time period. It now offers a dividend yield of around 3.9%, which is ahead of the FTSE 250’s yield of 3%. The company’s track record of dividend growth is impressive. It has been able to raise dividends per share at an annualised rate of 17% in the last four years. Although future dividend growth may not live up to its past increase, the performance of the business could remain sound.

Looking ahead, Big Yellow Group is expected to report a rise in earnings of 8% next year. Although the outlook for the UK economy may be uncertain, it could deliver impressive total returns in the long run.

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Peter Stephens 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.