‘Buy to let’ has been a popular investment over the last few decades and it’s easy to see why. Historically, the combination of rising house prices and relatively low borrowing costs made it an attractive strategy for generating income and long-term capital growth.
However, in more recent times it has become harder to make the case for buy-to-let property as an investment strategy. Due to a confluence of factors, the profits are not what they used to be, and the numbers no longer make sense for many investors.
In this article, we highlight some of the challenges buy-to-let property investors face today. We also explore some alternative real estate investments that could be worth considering as part of a diversified portfolio.
Buy-to-let market dynamics have changed
In recent years, the buy-to-let property investment landscape has changed dramatically.
For a start, while interest rates have begun to ease in 2025, they remain significantly higher than the ultra-low levels of the 2010s. This sustained higher cost of borrowing has continued to impact the profitability of buy-to-let investments.
Secondly, taxes associated with buying and owning property have significantly increased. In the past, landlords could offset mortgage expenses against their rental income. Today, however, buy-to-let landlords must pay Income Tax on their entire rental income, irrespective of their mortgage interest costs. Meanwhile, Capital Gains Tax (CGT) allowances are falling. For the 2025/26 tax year, the annual CGT allowance remains just £3,000 and the tax rate for gains on residential property is now 24% for higher and additional rate taxpayers.
Additionally, new regulations have pushed investment costs up. For example, landlords are now required to have an Energy Performance Certificate (EPC) with a minimum rating of ‘E’. However, delays on government proposals could mean that landlords are required to have an EPC rating of ‘C’ or above by 2030.
Put all this together, and the once-compelling case for buy-to-let property now looks a little shaky.
Why invest in alternative real estate investments?
The good news if you love property as an asset class is that there are many other ways to invest in property.
Today, there are a range of alternative real estate investments that can enable investors to enjoy the benefits that property investing can offer – such as long-term capital gains and steady income – without having the costs of buying and managing individual properties themselves.
And investing in these alternative forms of property can have many potential advantages. For example, they can often be held in tax-efficient wrappers such as pensions or ISAs, which may offer tax advantages depending on your circumstances. Tax treatment depends on individual circumstances and may change.
They can also offer more diversification. With these alternative real estate investments, it’s possible to gain exposure to a range of different types of property.
Additionally, they can be more liquid than residential property. For instance, with some alternative real estate investments, you can sell assets – and have access to your capital – within days, although this will depend on the actual investment you buy. With residential property, disposals can often take months, or even years, not to mention the costs associated with selling physical property
Overall, there could be many benefits to investing in these property assets.
Types of alternative real estate investments
Some of the main alternative real estate investments include:
Commercial property via funds
Commercial property is property used for business activities. It includes office buildings, shopping centres, hotels, warehouses, hospitals, and more. From an investment perspective, commercial property has a number of attractions, including:
- Higher yields – Commercial property yields are generally higher than residential property yields.
- Long-term leases – Leases are typically between three and 10 years.
- Income growth – Leases often have built-in rent increases.
- Potentially lower costs – For example, maintenance is the responsibility of the tenants.
- Exposure to economic trends – Commercial property can provide exposure to powerful, long-term economic trends.
The easiest way to invest in commercial property is via investment funds. These pool together money from many investors so that the investment managers of the funds can make large investments.
One major advantage of commercial property funds is that they can be held inside tax-efficient investment vehicles. Another is that transaction costs are generally low. With these alternative real estate investments, you don’t incur the same level of costs that you would when buying residential property (e.g. stamp duty and agency fees).
Real estate investment trusts
Real estate investment trusts (REITs) are investment companies that own property portfolios. They are similar to regular investment funds in that they pool together capital from many investors and make large property investments. However, the key difference between REITs and regular property funds is that REITs are traded on the stock market (meaning that they are liquid).
In the UK, REITs are required to distribute 90% of the profits from their property rental businesses to shareholders. So, they can be an excellent source of income.
Using alternative real estate assets to build a diversified portfolio
When it comes to building a solid long-term investment portfolio, alternative real estate investments can play a key role.
Alternative real estate investments may offer diversification benefits by behaving differently from equities and bonds in certain market conditions. Some also exhibit lower volatility in specific environments. However, their performance can still be influenced by broader economic factors, and they are not immune to market downturns.
It’s important to be aware of the risks associated with alternative real estate investments. Before channelling your hard-earned money into them, it’s sensible to seek professional guidance.
At Bowmore, we help investors build diversified investment portfolios that are aligned with their goals and risk profiles. We understand that investors want to allocate capital to property, and we can help you invest in the asset class tax-efficiently.
To find out more about how we can help you invest in alternative real estate, get in touch with us today.
- Bowmore Asset Management Ltd is authorised and regulated by the Financial Conduct Authority
- Bowmore Asset Management Ltd is not regulated to provide tax advice
- The value of your investments can go down as well as up, so you could get back less than you invested
- The tax treatment of certain products depends on the individual circumstances of each client and may be subject to change in future
- Past performance is not a guide to future performance