Should you invest your spare cash in buy-to-let property? Ten years ago, I’d probably have said yes. Today, I’d probably say no.
Rental landlords now face 3% extra stamp duty, restrictions on mortgage tax relief and higher house prices. And that’s before you consider problems such as bad tenants and costly repairs.
I think that the stock market offers much more attractive opportunities. In this article I’ll highlight three property stocks I’d choose instead of buy-to-let.
This big beast yields 5.3%
My first pick is FTSE 100 commercial property REIT British Land (LSE: BLND). This £5.5bn firm owns an £11.7bn portfolio of property. This includes £6.4bn of London offices and £4.8bn of retail property.
British Land’s office portfolio is modern and has continued to perform well this year, with 97% occupancy and continued rental growth.
However, retail property is out of favour at the moment. More of us are shopping online and many large retailers are struggling. This has put pressure on retail property values.
The good news is that British Land’s portfolio is mostly made up of larger, better quality property and has continued to outperform rivals. The firm has also been able to sell unwanted property at attractive prices.
At a last-seen price of 600p, British Land stock offers a 5.3% dividend yield and trades at a 30% discount to its book value of 856p. I reckon this could be a good level to buy for long-term gains.
This looks like a growth market
With housing costs high in most major cities and a shortage of affordable new housing, self-storage has been booming in recent years. I expect this trend to continue, as more of us share homes, move for work and need affordable space for our ‘stuff’.
One of the most distinctive players in this sector is FTSE 250 firm Big Yellow Group (LSE: BYG). The company’s massive yellow units are purpose-built and visible for miles around. They’re popular with both business and personal customers.
The Big Yellow share price has doubled over the last five years as the business has expanded. Profitability has remained stable, with a return on capital employed of around 11%. That’s at the upper end of what I’d expect from a well-run property business.
BYG shares trade are trading at 25 times forecast earnings, with a dividend yield of 3.1%. Although that’s not cheap, I think it’s a fair price for a business that I expect to continue growing.
Safer than houses
My final pick is upmarket housebuilder Berkeley Group Holdings (LSE: BKG). This FTSE 100 firm focuses on London and the south east. In its latest set of accounts, Berkeley reported an average selling price of £644,000 and a net cash balance of £1,061m.
This business has a number of attractions over rival firms, in my view. Because Berkeley targets affluent buyers and investors, its exposure to the government’s Help to Buy scheme is limited. The firm also has a long track record of timing the market successfully and completing complex, high-value developments.
Berkeley shares have performed strongly this year and aren’t as cheap as they were. But the company has plans to return £280m to shareholders each year until September 2025. Cash due on forward sales stands at £1.9bn and the firm’s shares offer a cash-backed yield of 4.4%. I reckon Berkeley should continue to be a long-term winner for London property investors.
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Roland Head owns shares of British Land Co. The Motley Fool UK has recommended British Land Co. 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.