Buying property to rent out used to be lucrative until the Government introduced new taxes on second homes and removed the tax break on mortgage interest.
That hasn’t stopped investors being drawn to residential property, which is what the UK Residential REIT (URES) is banking on when it lists on the stock market later this month.
This real estate investment trust focuses on mid-market rental properties in cities outside of London.
Residential property is usually an illiquid asset, so a trust, where you buy and sell shares in it, is an attractive option
Kee Gan, chief investment officer of L1 Capital, the company behind URES is targeting city centre flats that will generate immediate income, using economies of scale to refurbish them and gain rental uplift.
The trust won’t be starting from scratch. When it floats it will acquire a seed portfolio of more than 1,200 properties and a pipeline of £440million in investment opportunities from L1 Capital.
This seed portfolio has performed well during Covid, with 96 per cent rental collection last year and 95 per cent average occupancy over the past two years.
The trust’s targets are ambitious. Gan believes it can support a 5.5 per cent dividend yield and annual returns of 10 per cent – the stuff dreams are made on for Britain’s beleaguered savers.
Residential property is usually an illiquid asset, so a trust, where you buy and sell shares in it, is an attractive option. They are also a way of holding property within a pension or Isa.
But there are reasons to be cautious. Ryan Hughes, at investment platform AJ Bell, points out that many homeowners are already hugely invested in the British property market. So an investment in residential lets could overexpose some.
Midas verdict: This end of the residential lettings market is not easy to gain exposure to as an individual investor, but it can be lucrative. L1 Capital has a decent track record.
Its first two property funds generated double-digit annual rates of return last year. Those interested in acquiring shares as the company lists can do so through brokers including AJ Bell, Hargreaves Lansdown and Interactive Investor.
To be listed on: Main market Ticker: URES Contact: ukresidentialreit.com or 020 3871 2947
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