Forget about buy-to-let! I’d suggest buying shares in The PRS REIT (LSE: PRSR) is a much better idea for those wanting to grab a slice of the property market.
The PRS REIT creates, owns and operates newbuild family homes in the private rented sector (hence PRS). It’s a particularly good alternative for would-be buy-to-let investors too. It removes the day-to-day commitment and rising costs modern landlords need to deal with. And it’s a company which is creating homes at an eye-popping pace to capitalise on the fertile trading environment and drive profits growth.
Growth in middle-aged renters
Office for National Statistics (ONS) data this week revealed the size of this opportunity. Apparently, a third of people aged 35-44 years in England were renting from a private landlord in 2017. This compares with fewer than 1 in 10 in 1997.
As the ONS notes people in this age group — ones which are more likely to rent family homesteads from the likes of PRS — move from renting in their early adult life into home ownership by around this time as they take out mortgages and receive inheritances.
The number of people owning their own homes in this demographic has fallen for a variety of reasons though. Sure, mortgage rates might be at rock-bottom levels right now and Help to Buy gives first-time buyers an extra lift onto the ladder.
However, a shortage of new homes for ownership, a problem that’s caused property prices to balloon and created the need for sky-high deposits, means more and more of those in their 30s and above remain stuck in the rental sector.
Better than buy-to-let
As I say, this is a trend PRS has plans to exploit to its fullest by turbocharging production of its homesteads. In the three months to December, it built 256 new units, up markedly from 188 in the prior quarter. This took the total of homes on its books to 1,617. Consequently, its annual rent roll has improved to £14.9m, up £2.6m from levels seen in September.
And why wouldn’t it be so keen to expand? Booming demand means that 98% of its homes were rented as of the end of 2019. No wonder it has a further 3,300 homes under construction across 42 sites. When its current development pipeline is completed, it will have built 5,400 homes, predominantly in major regions in the North of England and the Midlands.
I understand why people buy-to-let investment has picked up again more recently. A shortage of available rental properties continues to drive rents higher (up 1.4% year-on-year in December, according to the ONS). But rising tax liabilities, increasing running costs and greater regulation is, for many people, soaking up these increased incomes.
Investing in rental properties is a good idea but only if it’s done correctly. And PRS REIT, with its 5.6% dividend yields, is a great way to get rich from the rental market.
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Royston Wild has no position in any of the shares 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.