Buy-to-let yields are plummeting, here’s one property stock I’d buy instead

You can gain access to the UK property market by simply buying this share instead of investing in a buy-to-let.

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.

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 landlords are facing an uphill battle to maintain their profits as rental prices are falling and the government is raising taxes and stamp duty on second homes. I think a better way to gain exposure to the UK property market AND leave your portfolio in the hands of an expert is by investing in Picton Property Income (LSE:PCTN).

Income potential

Picton is a closed-end investment company that focuses on UK commercial property. Shareholders benefit from the rents paid on the properties, which is paid out regularly as a dividend. The dividend currently stands at a healthy 4.3% and is covered 2.8x, which is well above the 1.5x coverage that is a rule of thumb for well protected dividends.

A closed-end investment company is one that does not issue new shares, therefore the price of the shares is reflected in the demand for them rather than the underlying value of the assets. Picton currently has approximately £674m of UK property, and after you consider cash and debt, that means each share has a ‘value’ of 92.2p compared to the current price of 88.2p. Therefore this structure for the company occasionally gives you the opportunity to buy shares at a discount to the net asset value of each share.

The Brexit problem

There are concerns about the impact that Brexit will have on the value of UK property and I suspect this is the main reason why Picton is currently trading below its net asset value. Fortunately, I think the firm’s management has spread the risk of its portfolio well. The industrial sector is where the highest weighting of commercial property is located, which is seen as one of the safer areas. In addition, its portfolio is sufficiently diversified so that risks are somewhat mitigated in the event of a chaotic Brexit.

Preferential asset class

The main reason that I’d buy this share over a buy-to-let is for the benefits of owning shares over property itself. There are a lot of costs associated with buy-to-let that need to be considered before you can start thinking about your profit. Stamp duty, maintenance, and insurance to name just three. On the other hand, shares require only a small fee of around £10 to purchase and investment companies will then charge an ongoing fee for the management of the fund. In the case of Picton this is 2% which is considerably less than would be required for a buy-to-let.

Shares in an investment company also offer you diversification and liquidity. When you own shares in Picton you hold property in a wide variety of locations that is exposed to a range of sectors. This reduces the risks that you would face if you owned just one property. You can also easily buy and sell shares in a company (known as good liquidity) if you need to access cash or become concerned about your investment. By comparison, it could take months and cost thousands in fees to sell a property.

Long-term income

I think that Picton offers a much more attractive long-term income investment than buy-to-let. Brexit may be casting a shadow over all UK property right now, but it will stabilise eventually and  this is a solid investment for someone who wants to own bricks and mortar without the headaches.

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.

RobertFaulkner1 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

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »