REITs VS BTL

cells

Has anyone had a look into British REITs? Companies like British Land, Land securities, Shaftesbury, etc

How do their past performance compare to just standard BTL-investing?

For a few months now I have wanted to have a look at some of the companies and do some sums as it seem an interesting comparison but haven't had the free time.

So anyone done this or any general views on REITs vs Standard BTL investing?

Thrugelmir

There's no direct comparison between them. Different beasts.

cells

Thrugelmir wrote: »

There's no direct comparison between them. Different beasts.

sure but you can still compare unrelated investments performances over the years. and the two are somewhat related in that they are both investments in property (some reits are resi some commercial some a mix)

When I have time I think i will look more into it but from my little understanding of it without researching it much at this stage I have this to go on


REITs positives
Passive investment
Can be held in an ISA
No capital gains taxes for the property the company holds (not 100% sure on this)
Much more liquid
Shares can be sold more slowly to use up annual CG-allowance
Can be held in a pension
No solicitors buying/selling fees


BTL positives
Active investment
Higher gearing
No management fees (your own time)

cells

I don't know if they exist as I haven't researched it much but surely there would be a big demand for a purely residential REIT geared with debt to 75% LTV

Maybe a national one, a London one, a Birmingham one, etc


surely a large REIT (with say a 500,000 residential homes) with its economies of scale and dedicated workforce should outperform the same 500,000 homes owned by 100,000-small-scale-landlords and their estate agents?

Generali

cells wrote: »

I don't know if they exist as I haven't researched it much but surely there would be a big demand for a purely residential REIT geared with debt to 75% LTV

Maybe a national one, a London one, a Birmingham one, etc


surely a large REIT (with say a 500,000 residential homes) with its economies of scale and dedicated workforce should outperform the same 500,000 homes owned by 100,000-small-scale-landlords and their estate agents?

There are residential property REITS. IIRC, Nomura created one when they bought all that MoD housing that caused a huge fuss for a day. It's probably run by Guy Hands' investment vehicle now.

Funds like that tend to be time limited and close ended. That is they identify an investment target and raise the money to buy it. When the money is raised the fund closes and runs for a fixed period after which you get your money back.

These aren't really retail investor funds, they're designed for big pension funds trying to match long term liabilities with long term assets.

This is a good article on traded REITs to be going on with:

http://www.investopedia.com/walkthrough/fund-guide/uit-hedge-fund-reit/real-estate-investment-trusts/analyzing-reits-performance.aspx

I like REITs for property exposure as, unlike a BTL, a REIT doesn't call you in the middle of the night wanting its boiler fixed and a REIT gives you diversification that a 2 bed terrace in Eastbourne isn't going to.

People are searching for yield right now and REITs last year were up 20-30%. I strongly suspect that REITs will be highly sensitive to changes in interest rates. Having said that, the value of a REIT can only fall so far below the underlying value of the assets as if it does then pressure mounts for the underlying assets to be sold and funds returned to clients. This can generally be forced by an AGM/EGM vote, depending on the exact structure of the REIT.

If I was looking at a REIT, I'd probably be looking at something like prime office space in prime locations: NY, London, that sort of thing or a really good long-term performer like British Land. Yes they have a lot of exposure to shopping centres (yuck) but they also hold huge amounts of amazing office space in Central London and a really good record of getting new buildings delivered well.

Thrugelmir

cells wrote: »

BTL positives
Active investment
Higher gearing
No management fees (your own time)

It's a business not an investment. So the requires the full range of skills. Potentially financial, legal, regulatory, even customer service skills. Unless you've multiple properties there's also the risk of a single point of failure.

caronoel

Thrugelmir wrote: »

There's no direct comparison between them. Different beasts.

Doesnt bother the likes of pro-crashist rags like Moneyweek regularly publishing articles on how house prices are linked to random other assets

In this case, its house prices and gold:
http://moneyweek.com/compared-to-gold-uk-property-is-starting-to-look-expensive/

Comic

Thrugelmir

caronoel wrote: »

Doesnt bother the likes of pro-crashist rags like Moneyweek regularly publishing articles on how house prices are linked to random other assets

Only people obsessed with the topic would even bother reading such a rag. House prices will be determined by external factors.