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Property investments have long since been a terrific way to generate a second income stream. Buy-to-let strategies have yielded fantastic results over the years. But more recently, tax changes, rising property prices, and higher interest rates have made the barriers to entry significantly higher for the everyday investor.
Fortunately, there’s a clever alternative that not only allows the average Joe or Joanne to tap into the real estate sector for income, but also do it entirely passively.
A hands-free real estate income stream
One of the easiest ways to start investing in this space is by using a real estate investment trust, or REIT. This special vehicle behaves and trades like a regular stock, allowing money to be added or withdrawn almost instantly – a massive liquidity advantage.
The underlying business is essentially a portfolio of properties actively managed by a team of experts and designed to generate regular cash flow, typically through rent, which is then returned to shareholders as a dividend.
What’s more, since REITs are traded like regular stocks, they can be put inside a Stocks and Shares ISA, removing taxes from the equation – another terrific advantage over classic buy-to-let.
Even with as little as £500, there are plenty of REITs on the London Stock Exchange to choose from, each focusing on its own types of property. It’s not just residential housing but also hospitals, carparks, wind farms, logistical hubs and many more.
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.
A REIT to consider?
Of all the stock market real estate opportunities available right now, LondonMetric Property (LSE:LMP) is among my personal favourites. The group specialises in triple-net, long-term leasing real estate with a particular knack for urban logistics.
With tenancy agreements typically spanning over a decade, the group has had little trouble maintaining exceptionally high occupancy levels even as UK economic conditions suffered. And following its merger with LXi REIT in 2024, along with further bolt-on acquisitions in 2025, the company’s been leveraging its impressive cash flows to absorb its weaker rivals and expand market share.
This has ultimately culminated in a decade of continuous dividend growth as well as its introduction into the FTSE 100 earlier this year. And with a 6.8% dividend yield still on offer, the second income investors could generate from buying shares remains substantial.
Every investment carries risk
As much as I admire the operational excellence of this business, I’m not blind to the risks it faces. While its long-term rental contracts have provided the cash flow needed to keep its leverage under control, higher interest rates have nonetheless negatively impacted the valuation of its property portfolio. And with a number of key leases coming up for renewal, lease pricing may be renegotiated downward.
There’s also an ongoing integration risk of its LXi acquisition. While this move helped expand and diversify the property portfolio, it also introduced exposure to entertainment and grocery real estate – an area that LondonMetric has fairly limited experience in operating.
Nevertheless, management’s solid track record makes me cautiously optimistic. And with a valuation driven by short-term weakness in property valuations rather than rental cash flows, I feel these shares are a terrific opportunity for investors to potentially unlock a substantial long-term second income. Of course, there are also plenty of other REITs to explore as well.
