According to the website The Money Advice Service (TMAS), which is a government-backed site helping people navigate through all things related to money, buy-to-let property should be considered as a medium- to long-term investment.
Gargantuan investment costs
You can buy a residential property with your own cash or by committing to a buy-to-let mortgage with a cash deposit. But there are risks, TMAS asserts, “if you need to sell the property for a loss, the sale price might not cover all that you owe on the mortgage.” In that scenario, you’d need to find more cash to pay off the mortgage, so your investment would be working backwards – instead of making you money, it would be losing money.
The site says there will be extra costs and you’ll need to put time into running the property and all of that could eat into your returns. When you become a landlord, “you’re effectively running a small business – one with important legal responsibilities.”
TMAS isn’t making buy-to-let sound attractive, is it? Yet there’s more. “Also remember, that if your tenants leave and there is no rent coming in, you still need to make your mortgage repayments.” Indeed, I agree with TMAS when it says “buying to let is a big commitment.” It is also unattractive, in my view, because the tax regime is working against the idea and property prices look dangerously high when you compare them to the average wage, which means property is less affordable than it was once and prices could face downwards pressure at some point.
Why this looks like a better way with property
TMAS says property investment can “feel more tangible,” but I think that’s an illusion. The reality is that you are stuck with a buy-to-let property because the cost and inconvenience of selling up, and the necessity of finding a buyer means a property investment is very illiquid. So why get yourself into something that’s hard to get out of when you can buy shares in a property company such as TR Property Investment Trust (LSE: TRY)?
The Trust is long in the tooth when it comes to investing in property and has been around since 1905 with the shares available on the stock market since 1982. It invests in the shares of property companies “of all sizes on an international basis” and also invests in investment property located in the UK, which means you can get a lot of diversity in the underlying investments by buying the shares of the trust. The directors state on the company’s website that the trust aims to identify well-managed companies of all sizes and the directors “generally regard future growth and capital appreciation potential more highly than immediate initial yield or discount to asset value.”
The dividend yield is running close to 3.4% and the firm scores well against quality and valuation indicators. If you are interested in investing in property, I reckon TR property Investment Trust is well worth your further research right now.
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Kevin Godbold 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.