The Motley Fool

Forget buy-to-let! Here’s how I’d use REITs to invest £20k today

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.

Image source: Getty Images.

It’s no secret that property has generated impressive returns for many landlords over the last few years. However, buy-to-let is not the golden goose that it is often portrayed as being. The reality of it is long hours, dealing with tenants (or paying exorbitant fees to management companies), and having to be hands-on. In other words, it’s not the relaxed existence that some people think it is. Is there a better way to gain exposure to the market without having to go through the ordeal of actually managing a property?

As it turns out, there is. A real estate investment trust, or REIT, is a company that owns and operates a portfolio of properties. By buying shares of a REIT, you gain indirect exposure to its portfolio (and therefore, to the property sector as a whole). REITs are obligated by law to distribute 90% of their profits to shareholders, so you can be sure that a large proportion of the earnings are flowing through to you. Furthermore, they give the average investor an ability to gain exposure to a far more diverse number of properties than they would get by buying, say, a house or flat outright. Here are some REITs that I would consider investing in.

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...

Shaftesbury

Everyone knows that the most important thing about property is location, location, location. West End-focused REIT Shaftesbury (LSE: SHB) ticks all the boxes in this respect. It owns mainly commercial properties in areas such as Covent Garden, Carnaby and Soho, which I believe is a no-lose proposition when one considers the historical attractiveness of an area like Central London. 

I also think that Shaftesbury’s enviable position gives it relative insulation from the fallout of a potential no-deal Brexit. Let me explain. The UK property market has been skittish ever since the 2016 Brexit referendum. However, the UK domestic market is a zero-sum game — there are only so many places that money can go to, and in times of trouble it will flow from more risky investments to less risky ones. When it comes to investing, I believe that simpler is better, and nothing presents a simpler value proposition than property in Central London. And remember, Central London retail also benefits from the tourist boom, which has actually been helped by the pound’s fall on the back of Brexit.

Urban Logistics

If I want to add a little diversity to a real estate portfolio, then I would look no further than shares of Urban Logistics. This is a REIT that focuses on warehouses and storage facilities. It offers a very healthy dividend yield of 5.2%, which outstrips the average FTSE 100 yield of 4.5% by a considerable margin. Moreover, storage is a distinctly different sector to Shaftesbury-style commercial real estate: it is situated in areas that are relatively remote, it has much lower overheads costs and it has a different profit profile to other commercial spaces. That helps to give a portfolio diversity.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Stepan Lavrouk owns no stocks 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.