£20,000 in savings ? Here’s how I’d target a large second income from the UK’s property market
Story by Royston Wild
Historically, investing in property’s been a great way to make a strong and sustainable second income. Buy-to-let was particularly popular with those looking to invest their savings.
But conditions have become a lot tougher for private landlords over the past decade. So I’d forget buy-to-let. Here, I’ll reveal what I think’s a much better way to make money from the UK property market.
Fading appeal
But before I do, let’s quickly look at why buy-to-let’s become increasingly unattractive with Britons.
The Tenant Fees Act in 2019 brought in measures like transferring certain costs from tenants to landlords, and capping deposits. The restriction of mortgage interest relief and higher stamp duty on second properties has also had an impact.
Property owners have faced higher mortgage costs since the Bank of England began hiking interest rates.
The effect of all of this has been big. According to price comparison website Finder, the average landlord in April made £4,000 less a year in profit than in 2020, despite monthly rents shooting steadily higher.
Better property buys?
It’s still possible to make money as a landlord, but I’d rather find other ways to make money with bricks and mortar.
Fortunately, UK share investors have what I consider to be an excellent alternative to buy-to-let. Real estate investment trusts (REITs) are companies that invest in a pool of properties in one or across multiple sectors.
We’re talking about hospitals, shopping centres, offices, factories and hotels, for instance. This gives investors a lot of choice, and allows them to spread risk across a wide variety of properties.
Investors also don’t have to pay large upfront sums to get involved with REITs. And under sector rules, these companies must pay at least 90% of annual rental profits out in the form of dividends.
But on balance, I think investment trusts would be a better choice for me.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
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