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3 real estate shares better than an investment property

Australians are completely obsessed with residential property. It’s as safe as houses after all.

However, investing in an investment property could be one of the most dangerous choices at the moment. Property prices are starting to head down, interest rates are heading up and negative gearing makes it a cash-burning exercise.

It’s true that population growth is still driving the total value of the property market up at a significant rate.

That’s why the following three shares could be good for their property exposure:

REA Group Limited (ASX: REA)

REA Group is Australia’s leading property portal website, realestate.com.au. If you own REA Group shares you earn a small amount from every property listed onto the site, which is most properties these days.

The company is able to implement price increases with little detriment because its cost is a relatively small part of the overall property marketing budget and people have no choice but to use the market leader.

It’s currently trading at 33x FY19’s estimated earnings.

DuluxGroup Limited (ASX: DLX)

DuluxGroup is Australia’s leading home improvement product company. It has a variety of ranges like its paint brands Dulux and British Paints, garden supplies brand Yates, interior & exterior finishes brand Cabot’s and DIY, cleaning products and adhesives brand Selleys.

None of these products are big-ticket items, so they should continue to do well in an economic downturn. More properties in Australia should mean more revenue and profit for DuluxGroup over time.

It’s currently trading at 19x FY19’s estimated earnings.

Reece Ltd (ASX: REH)

Reece is Australia’s largest bathroom and plumbing business. The construction boom of new properties should mean continued bathroom purchases and earnings.

However, it’s the other segments that sound interesting to me. It is a leading civil waterworks and sewage pipe supplier, as well as a leading irrigation supply business. Australia is heavily investing and expanding into infrastructure and more properties, which could lead to good growth for Reece.

The US purchase is a big move, which could turn out to be a mistake. But it could also work out for Reece, only time will tell.

Foolish takeaway

I like all three shares, but I would only want to buy DuluxGroup at the current price. REA Group is trading too expensively for me and Reece’s big US move could be too risky. DuluxGroup is a slow-and-steady grower which could compound returns for investors over time.

I'd also want to consider these top shares with growing brands ahead of an investment property too.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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