Investing in property is without a doubt something of a national sport in Australia. ‘Climbing the property ladder’ seems to be one of our favourite yardsticks in judging how financially successful someone is.
Yet investing in property (as we all know) is not easy. Firstly, you have to come up with a sizeable deposit, which usually takes years of dedicated saving. Secondly, things go wrong with houses all the time. Whether it’s tenants with an unhealthy interest in chemistry or gardening, blocked sinks or putting in a new carpet – I think it’s safe to say houses and property take a lot of ongoing work to keep cash flows up.
That’s why I personally prefer REITs over physical properties. REITs (or real estate investment trusts) are ASX-listed companies that invest only in property assets – think of them like a company that plays landlord with the shareholders receiving the rent.
You as the owner don’t have to worry about tenants, maintenance or taxes – the company takes care of that for you.
One great example is BWP Trust (ASX: BWP). BWP is the company that owns many of the sheds that house the popular hardware store Bunnings – owned by Wesfarmers Ltd (ASX: WES). For one, there’s no risk of a bad tenant with Wesfarmers – one of the largest companies in Australia. All ongoing maintenance costs are also paid for by Wesfarmers, meaning that the owners of BWP haven’t got much else to do apart from collecting rent, which today translates into a 4.34% dividend yield for BWP shares.
Another great example is Scentre Group (ASX: SCG). Scentre owns the Westfield-branded shopping centres in Australia and New Zealand. Basically, all of the individual shops in a Westfield centre pay rent to Scentre for using its space, which in turn gets passed onto Scentre shareholders after all other expenses are met. Today, SCG shares offer this as a 4.87% dividend yield.
I’ll admit I’m a lazy investor and far prefer these kinds of arrangements than running around fixing an investment property. Of course, there are other advantages like leverage or negative gearing with investment properties that you may want to take advantage of. But it’s hard to find a property yielding nearly 5% on cost these days, so a REIT like Scentre or BWP is a great alternative, in my view.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Scentre Group. 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.