There’s a landlord exodus from the buy-to-let market. It has been reported that 56% of landlords in England aren’t confident that property investment will provide an adequate return over the next 10 years.
A separate study found that the average landlord is left with just £2,000 from an annual return of £13,000 once the hidden costs of being a landlord are paid for. I don’t know if buy to let is dying as a result of this, but I do think investors should pile into the share prices of these two property companies instead.
Redrow (LSE: RDW) to me looks too cheap to ignore. The price-to-earnings (P/E) of the shares is under 7, and the shares yield around 5%. The share price has also been ticking up lately. It has risen by 18% in the last month and by 26% so far this year.
Earlier this month there was a positive update from the housebuilder. For the year ended 30 June, it made a profit before tax of £406m. Revenue jumped 10% to £2.1bn.
Social housing saw a massive rise in orders, but this dragged down Redrow’s overall margin slightly. Investors, however, might be pleased with the diversification of earnings, because if there’s an economic downturn it would be likely to increase demand for social housing.
The company has a strong track record that I think should give comfort to investors, regardless of wider concerns about the economy and Brexit. Given the combination of low P/E and generous dividend, I think the shares are a buy despite the recent jump in price.
One of the major benefits of investing in a real estate investment trust like Tritax Big Box REIT (LSE: BBOX) is that it must deliver a majority of profits to investors. The upside of this is that REITs nearly always have strong dividend yields.
Tritax’s yield is 4.6% and growing year over year, which is a good sign for investors. The dividend is covered over three times by earnings so looks to be sustainable. The company is tapping into the growth of e-commerce – a trend that only looks set to grow, so the business model taps into opportunities for further growth.
The management at Tritax has proven they’re adept at finding great locations for its warehouses and can secure attractive assets in off-market transactions. Replicating this market knowledge would be difficult for a competitor so the quality of management is creating a barrier to entry, a positive for investors.
Tritax has also invested in further growth, which should help increase future earnings. It spent £370m to acquire 87% of db symmetry, adding to its market share, land for development, and assets.
Overall, I believe that Redrow and Tritax Big Box REIT have a lot to offer to investors, both from an income and a growth perspective. Both shares should outperform the returns from buy to let, I think, and so could well help you retire richer.
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Andy Ross owns shares in Redrow. The Motley Fool UK has recommended Redrow and Tritax Big Box REIT. 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.