Why now is a golden opportunity to earn passive income from UK real estate

Property prices in the UK have been falling for a long time. This means that there are great opportunities for investors looking for passive income.

According to a report earlier this week, 60% of homes priced under £500,000 have sold for less than the asking price. But it’s not the housing market that’s my concern right now.

Warehouse

The warehouse industry has been hit hardest by the recent downturn. As a result, I think there are some tremendous opportunities in real estate investment trusts (REITs) in this sector.

REITs are required to distribute 90% of their rental income to shareholders. This means they cannot use the cash they generate to fund acquisitions, making them dependent on debt.

As a result, rising interest rates have caused real estate prices to fall. As debt to fund purchases becomes more expensive, demand in the property market subsides.

This is especially true for industrial property, where demand was previously strong. By 2021, investors will spend more than £18bn on warehouse purchases to benefit from the rise of e-commerce.

Now that the tide has turned, REITs that own warehouses and distribution centers are finding their asset values ​​fall. The bubble in industrial property appears to be bursting.

As a result, the share price is falling. During the last 12 months, Shares in secret has fallen by 35%, making it one of the worst-performing stocks FTSE 100.

return on investment

I think selling in UK warehouse REITs is missing the point. Although interest rates are rising, there are good prices for passive income investors.

Despite falling prices, the number of warehouse spaces for rent in the UK is set to rise in 2022. And rental income from industrial properties is growing faster than any other real estate sector.

I am reminded of Warren Buffett’s advice here. What matters in terms of return on investment is not what happens to asset prices, but how much cash the business generates.

Buffett points out that a person who owns a private business will never get a quote on how much they can sell on a daily basis. However, they will see how the business goes.

In general, despite falling stock prices, REITs focused on warehouses are producing good returns. This makes them attractive at today’s prices.

I especially like it Warehouse REIT is an investment opportunity in this sector. As the name suggests, the portfolio focuses on industrial properties.

Over the last 12 months, the stock is down about 35%. But the company’s latest trading update looks pretty strong to me.

Rental income was up 3% and adjusted EBITDA increased 7%. Management also announced an increase in the dividend, which currently yields around 6.5%.

To me, this seems like the kind of opportunity that doesn’t come around very often. The rise of e-commerce means the price of industrial real estate is rising, but I think now is the time to move.

I expect interest rates to rise further, which creates a risk to the value of the company’s portfolio. But the prospects for this stock look promising from a passive income perspective.