There are many ways to invest my hard-earned salary. Once, I bought a house at auction, renovated it, and had two options: sell it, or rent it out. In the end, I chose to sell. The potential rental income was attractive, but it would have required quite a lot of management. This is why I decided against becoming a buy-to-let landlord.
Instead, I used the proceeds from the house sale to make these alternative investments.
Alternatives to a buy-to-let
Real estate is still a good place to invest, in my view. But there are other options aside from a buy-to-let.
My first choice investment was to buy shares of companies with exposure to the property market. I first bought Rightmove, and then Belvoir, as they bring a good amount of diversification to my portfolio.
Rightmove is the largest online property portal in the UK. It has an excellent network effect because most homebuyers use the platform. Therefore, there’s a very good chance a property seller would list on Rightmove’s platform because it has the biggest audience.
Belvoir is a bit different. It’s a franchise group of estate agencies specialising in both lettings and property sales. This brings additional diversification to my portfolio as it’s an agency-led business and not an online platform. The company has been trading well recently, and upgraded its expectations for profit before tax for the full-year to 31 December.
Rightmove and Belvoir do have risks. For a start, they’re both exposed directly to the UK housing market. Any slowdown in home sales or lettings would likely lead to reduced profits for the companies.
Diversifying my options
Another complementary investment I’d consider is real estate investment trusts (REITs). These are companies that specialise in owning and managing property. If I bought shares in one, it would mean I wouldn’t have to manage the property myself, but still have an allocation to the sector in my portfolio. The shares trade on an exchange, just like other stocks, so there’s still a risk of share price volatility in my portfolio. REITs are also affected by occupancy rates just like a buy-to-let. If this drops, such as during a recession, rental income will too. This would likely cause my investment to fall in value.
There are many REITs to choose from in sectors such as warehousing, supermarkets, and traditional retail outlets. It’s an added benefit of buying REITs in my portfolio because they’re a good way to add diversification away from the UK housing market.
In the industrial space, I’d buy shares of Tritax Big Box, Urban Logistics and Warehouse. What I like about these is that they’re well placed to take advantage of the booming e-commerce sector. Each company manages critical logistics centres and prime warehousing space. I certainly wouldn’t be able to invest in this area as a buy-to-let investor!
One final REIT I’d buy is Supermarket Income. It manages a portfolio of real estate that large supermarket brands rent out. The income is also inflation-linked, which brings some inflation protection into my portfolio too.
I do still like the idea of buy-to-let investments, and maybe I’ll revisit it one day. But for now, I’m happy that I’ve got exposure to the property sector in my portfolio using these alternative investments instead.
Dan Appleby owns shares of Rightmove and Belvoir. The Motley Fool UK has recommended Rightmove, Tritax Big Box REIT, and Warehouse REIT. 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.
