Property vs Reit Investment trust

26th Oct '21 by tony akram

6 comments 573 reads

Looking for some help with this issue

I own a property which is let out ( with very modest yield of less than 3% pa ) value is £200k (no mortgage ) , I am higher rate tax payer .

With it becoming more hassle to rent ie legislation from Govt.etc I have often thought would it be easier just to sell the property and buy a investment trust with a higher yield ( see link for some options https://www.theaic.co.uk/incom... ) or if I want exposure to property purchase a property Reit which are mostly on discounts at present.

My thinking is that either option would allow steady income without the hassle of managing a property , I understand the risk that the IT could underperform however spreading this among 5-6 ITs could mitigate this somewhat .

Furthermore the ITs would be more liquid should I need the money quickly.

To me I see little down side , am I missing something ?

Would be interested to hear what others think .

Thanks

Tony

Unlock with Email

Unlock with Google

Already have an account?
Login here

ken mitchell

27th Oct '21

Tony.

As you’ve had no replies to a very interesting question I’ll add a bit.

Your idea is sound imo....but what a shame you didn’t think about and post this last year!

Some of the Investment Trust REITs were ridiculously cheap then, so much so that they were trading at discounts up to 45% even for hose with solid portfolios. I bought several then and still hold them with confidence.

e.g AEWU with an 8p dividend had dividend yield of 13%!

All of the decent REITS have seen big (50% or more sometimes) share price recoveries since then so the best of the capital gains have been had.

BUT the good news is that some are still on double digit discounts and even after big share price gains dividends of 7% or a bit more are still available. EPIC for example pays nearly 7% monthly and another dividend increase is likely very soon.

AND there’s a good chance discounts will continue to narrow and with some reporting increasing NAV, some capital gain on top of the dividend income is still likely. AIC using the link below is a great way to check them out in case you didn’t know this already. E.g for their portfolios, updates, performance etc. I hold EPIC, SREI, SERE,AEWU, RGL and AIRE. The safest of all are the likes of SUPR but that’s reflected in their trading at a premium and also smaller dividends.

And whatever you do don’t even think about Property Unit Trusts. Unit Trusts are not suited to Property and at times of heavy selling can lock in their investors for months sometimes!

https://www.theaic.co.uk/aic/f...

gus 1065

Once upon a very long time ago I set up a company with some friends under the old Business Expansion Relief scheme. Very tax efficient (think 40% plus tax relief on capital contribution and tax free on the exit with various other bennies along the way) and we invested in a portfolio of run down ex council house apartments in and around Croydon that we tarted up, rented out and then sold. As a business it was a cash cow but as an adjunct to a full time job it was a real pain in a**e dealing with tenants and spending every waking hour doing renovations and odd jobs (or in a couple of cases being a bouncer to evict some slightly dodgy characters). This was before a whole raft of HSE type rules and regs came into being which presumably would have made life a whole lot more complicated. Eventually we sold up and liquidated everything and from memory came out with something like a 30% compound PA after tax return but I haven’t touched tangible property investment since (other than buying and trading up my own home) taking exposure and diversification through funds and ITs and much happier for it. Definitely some leakage in fees etc., but a lot less personal wear and tear and much more liquid.

Gus.

Momoko Miyamoto

Advantages of REITs vs BTL

1 Higher yields available

2. Minimal hassle

3. Easily invest in different types of real estate, shops, offices, warehouses, medical centres, student dorms, supermarkets etc

4. Liquidity

5. Can make regular use of annual CGT allowance by selling fractions of holding and subject to lower CGT rate.

6. Can be held in ISA or SIPP

Advantages of BTL over REITs

1. Can leverage investment via mortgage

2. Full control over underlying asset(s)

3. Can avoid management charges if self-managed.

4. Can add value by developing or refurbishment

AnonymousUser465323

One other advantage of property is capital growth, be interesting to know what the original poster paid for their now £200K property, I own several and the capital growth has been outstanding, only issue will be CGT if I ever sell them.

I do use a property management company as I can't be bothered dealing with people and it works really well and keeps me legal

Alphaflight

28th Oct '21

UK REITs aren't appealing to non-UK residents. That is to say, HMRC withhold all dividends and they also demand tax related paperwork post sale (this does not apply to other UK listed equity classes !!!!).

The new rules require foreign residents to declare any disposal of these shares/units to HMRC and (if applicable) pay the CGT to HMRC within 30 days of the date of disposal - reporting is required regardless of whether there is a profit or loss.

New legislation (from April 2019) which applies to non UK residents disposing of UK property funds which are more than 75% invested in UK property. Property funds include Real Estate Investment Trusts (REITs), Open Ended Investment Companies (OEICs) and Société d’investissement a Capital Variable (SICAVs).

The rules defining who is captured are complex and can change depending on jurisdiction and primary residence.

tony akram

Many thanks for you posts ..... food for thought

Property vs Reit Investment trust

Unlock the rest of this article with a 14 day trial

About the Author

Tony Akram

6 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...