Owning a property can be a great way to build wealth over the long term. The problem is, it requires a lot of capital to buy a property in the first place. This means owning a buy-to-let property is virtually impossible for investors who don’t have £50,000 or more of cash lying around.
But there are other options. Indeed, there are several ways you can get exposure to buy-to-let investing today with as little as £1,000.
The peer-to-peer buy-to-let sector has exploded in size over the past few years. Today, there are a number of platforms that allow you to invest as little as £100 in property, or property-backed loans. You supply the money, and these companies take care of the rest.
For example, Brickowner uses funding from investors to buy a rental property which it then manages. Investors earn returns with rental income and capital growth when the property is sold. Other platforms, such as LandBay and LendInvest, allow you to invest in property loans, which offer a property-backed steady stream of income.
If peer-to-peer lending isn’t for you, then choosing a real estate investment trust might be a better option. REITs own and manage a portfolio of properties. By law, they have to return virtually all of their property income to shareholders and, in return, they get tax benefits. You can get started investing in these businesses with just a few pounds. Many offer yields of 5% or more today.
Most REITs are run by highly experienced individuals and offer exposure to sections of the market most investors would never be able to access, such a London commercial property, healthcare facilities, or supermarkets.
A company that offers direct exposure to the UK buy-to-let market is residential landlord Grainger. This business owns and operates a portfolio of nearly 10,000 rental homes across England, which threw off a total rental income of £72m last year.
In my opinion, this is a great way to invest in buy-to-let property without having to do any work yourself. The stock currently supports a dividend yield of 2.2% and the distribution is covered 1.3 times by earnings per share.
Over the past six years, the dividend to investors has grown at a compound annual rate of 23%. At the same time, the company has spent hundreds of millions of pounds investing in its property portfolio. The value of the portfolio is now nearly £1.6bn.
While the dividend yield of 2.2% may not look like much, when you add in the capital growth from this portfolio expansion, the stock has produced an annual return of 8.8% for investors over the past five years.
The bottom line
All in all, it isn’t possible to become a buy-to-let investor with just £1,000, but if you want to invest in UK property, there are plenty of ways to do so with this modest sum. An added bonus of using one of the above options is you don’t have to do any extra work yourself. All you need to do is invest, sit back, and relax.
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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.buy