Buy-to-let investing can be a profitable strategy. However, it can also be time-consuming and costly. You can hire a management firm to take care of all the nitty-gritty work such as finding tenants and maintaining the property, but this means paying out a share of your profits, money that you may not want to give away.
Considering all of the extra work that is required with buy-to-let investing, wouldn’t it be nice if you could buy shares in a company that gives you exposure to buy-to-let investing without all the extra work involved?
The good news is you can.
Grainger (LSE: GRI) is one of the UK’s largest landlords. It currently owns 9,000 homes across the UK with an extra 5,000 homes in the pipeline. The total size of the firm’s overall property portfolio is £2.3bn. The group has over 106 years of experience managing property as a professional landlord, and for the year to the end of September, the company reported net rental income of £43.8m.
As noted above, Grainger is in the process of creating 5,000 new homes across the UK, which should translate into rapid earnings and dividend growth over the next few years. It is investing a total of £1.2bn in private rented properties by 2020. As part of the strategy, today the business revealed that it has been shortlisted as one of the three companies by Transport for London (TfL) for a strategic partnership to help build 3,000 homes for rent around tube stations in the capital.
To help boost growth further, the company recently announced that it is buying out its Dutch partner in joint venture GRIP REIT. This £396m property portfolio expansion will be funded by a rights issue, increasing the size of the firm’s property portfolio by 1,700 homes.
Better than buy-to-let
I think Grainger is one of the best ways to get exposure to the UK’s residential property market, and today, you can buy shares in this business at a steep discount to the value of the company’s property portfolio.
At the end of September, the group’s net asset value per share was 316p, although this excludes any impact from the GRIP REIT acquisition and rights issue. However, management believes this deal will be accretive to net asset value due to “additional value from asset management initiatives,” which is expected to offset “any immediate dilution” from the rights issue and acquisition costs.
On top of Grainger’s attractive valuation, the shares also support a dividend yield of 2.5%, which is not particularly outstanding. However, analysts are forecasting growth of 28% next year, which will take the yield to 3.2%. I also expect the value of Grainger’s shares to rise as the company progresses with its plans to expand its residential portfolio and rent roll.
In my opinion, considering the fact that the firm’s book value per shares has increased at a compound annual growth rate of 11.8% for the past six years, I reckon investors could see double-digit share price appreciation over the next few years, on top of the dividend yield.
That’s why I believe shares in this residential landlord are a much better investment than buy-to-let.
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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.