Q-Investing in REITs ?

C_Mababejive

Im just researching re possibly pumping some money into residential property. I dont want to hold it directly

My first look was at at UK property REIT which develops,builds then rents out but not necessarily to the social housing sector.

I then thought, can i diversify further into mutual funds and ETFs but a lot of these seem to be top heavy with commercial,retail property .

As a firect shareholder in a REIT, at least i would have a closer linkage to the assets of the company ie the houses,albeit REITs also have debts to be paid. Th houses appreciate a little year on year hopefully an rents also go up.

So are residential property REITs really as safe as houses?

Im thinking PRS :REIT

MaxiRobriguez

Relatively concentrated portfolio of private rented homes in the North West. Dividend yield of 5% currently, not bad. Risks are that house prices and rental costs are both high by historical standards on salary multiples so a revert to the mean type scenario could result in a medium term under-performance. UK economy/Brexit factors need to be considered in terms of impact on the North West too. Personally I would expect assets in and around Liverpool to reduce in value more than elsewhere in the country during recessionary periods.

As (a small) part of a well balanced portfolio then I don't see much wrong in picking up a REIT, but I do think there's better investments. Perhaps the first question is why you want to go down the REIT route?

Malthusian

A fund investing in residential property doesn't get the same tax benefits that an owner-occupier does (no primary residence relief, higher stamp duty) so is taking more risk than an owner-occupier investing in the same house for the same reward.

A REIT investing in residential property is therefore less safe than houses, if you are defining your benchmark for "safety of houses" as the risk / reward of an owner-occupier.

True, a single house has specific risks that a diversified fund doesn't, but residential property funds tend to be small and not that well diversified either in my experience.

Most investors have a very large chunk of their assets (albeit not free assets) in residential property already, so the first question is why you believe that's insufficient. An index-tracking stockmarket investment will add further exposure via housebuilders, publicly listed REITs, etc, in proportion to their significance to the economy.