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Warning! Buy-to-let could make you poorer. Here’s what I’d own instead

Investing in buy-to-let property has made many investors a lot of money over the past few decades. However, over the past five years or so, the government has cracked down on the market.

Policymakers have introduced additional regulations to try and reduce the number of bad landlords and improve the quality of accommodation. At the same time, the government and HMRC have been cracking down on tax breaks that used to be available to buy-to-let investors.

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Thus, costs across the industry have increased with landlords’ tax bills having also risen thanks to those tax changes. 

Unfortunately, one of the big problems with owning rental property is the fact it takes a while to sell up. Unlike stocks and shares, which any investor can sell at the click of a button, it can take months, or years, to sell a property. If you have a tenant and need to sell, you might have no other option but to evict your tenant, which is a process that can become very messy, very quickly.

With this being the case, taking on a buy-to-let property, and the obligations of being a landlord, could be a big financial mistake. As such, a better way to invest in property is through real estate investment trusts (REITs).

REITs

The great thing about REITs is that they’re publicly traded. This means you can buy a share of one of these companies from just a few pounds. What’s more, because they tend to have much more financial firepower than the average buy-to-let investor, REITs can own different assets.

For example, you can invest in REITs in that own hospitals, supermarkets, car parks, theme parks and logistics facilities. It would be virtually impossible for the average investor to gain access to many of these asset classes acting alone.

So REITs are easier to buy and sell, they can own different assets and you don’t need a huge deposit to become an investor. In addition to these advantages, REITs are also usually managed by an experienced team. 

Experienced team

Some of the largest trusts in the country are managed by teams with over 100 years of combined experience. It would be impossible for the average investor acting alone to build the same kind of knowledge. 

These teams look after the investment, so you don’t have to. There’s no need to worry about evicting tenants if they fall behind with their rents, or complying with regulations. Management takes care of everything for you, including maintenance and interest charges. 

Moreover, to meet the qualifications for a REIT, these firms have to distribute 90% of their rental income to shareholders. That’s why some trusts offer dividend yields of 5%, or more. 

As such, REITs appear to be a much better investment for income seekers than rental property over the long run. 

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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.