The Motley Fool

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

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.

View of Canary Wharf
Image source: Getty Images.

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.