Here is a stock I will buy to start earning a second income before Christmas

Becoming a buy to let property owner in the UK has never been so difficult. But it is still possible for investors to get a second income from real estate.

Real estate investment trusts (REITs) are companies that own and lease real estate. They also distribute the rent they collect to shareholders, providing a source of income.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice.

PRS REIT

Different REITs have different types of structures. PRS REIT (LSE:PRSR) is focused on residential properties and I think it can be a smart alternative to owning a property.

One of the biggest problems with managing a portfolio of shopping malls is being able to deal with ever-changing regulations. A good example is energy efficiency.

Currently, rental properties in the UK must have an Energy Performance Certificate (EPC) rating of 'E' or higher. But homeowners may have to deal with these higher costs in the long run.

Shareholders in PRS REIT probably need not worry. All of its properties are rated 'C' or higher and if they need improvement, that is done by the management, not the investors.

Assignments

Currently, the business pays 4p a year in dividends to shareholders, a yield of 3.8% at today's prices. That alone is not exciting, but there may be more to come.

In general, REITs have two main approaches when it comes to growth. One involves increasing rents and the other involves adding more properties to their portfolio.

I think PRS REIT has great potential for both. In terms of rent increases, the company was increasing rents by 11.7% last year while maintaining 100% rent collection rates.

In addition, the company has 180 properties with an annual rental value of £1.4m under contract to add to its portfolio. So there are clear growth prospects for investors.

Accidents

I think the market for PRS REIT is very good. Demand for rental properties is unlikely to end anytime soon and with buy-to-let properties less popular, supply is also limited.

However, there are some significant risks. The most obvious of these is financing – while a company can buy properties directly from developers, doing so would involve taking on debt.

This can significantly reduce profits in the long run. For example, PRS REIT has a £102m loan currently paying 6% on it until 2038.

The average cost of corporate debt is low – around 4.5%. But investors should keep an eye on the company's balance sheet to make sure that borrowing costs don't become a problem in the future.

Income before Christmas

In many ways, PRS REIT has a straightforward business model. But it's a stock I'd buy today if I was looking to start trying to get a second income before Christmas.

The company's shares traded ex-dividend on November 7. And investors who own shares when the market opens on that day will receive the dividend 22 days later.