So, you’ve decided you want to invest in property but not sure of your options? Don’t worry – we’ve got you covered.
Property – alongside cash, bonds and shares – is one of the four most common types of investments and is generally viewed as a long term investment. Remember though, investment comes with risk to capital and yields are by no means guaranteed.
There are 3 ways to invest in property that offer a more hands-off investment than traditional buy-to-let. One is via the traditional commercial property fund and two more innovative developments are peer-to-peer (P2P) lending and property crowdfunding.
These types of investments may be right for you if you:
- Want to invest in property markets without having to buy a house or flat yourself
- Are ready to commit to a long-term investment
- Understand that the property market can fall as well as rise and that the value of your investment can therefore go up or down
Commercial property funds
When you invest in a property fund your money buys shares or units in the fund. It is pooled together with other investors and a fund manager uses the money to invest in commercial property such as shops, office blocks, retail parks and warehouses. Returns are generated from rent from tenants and capital growth over the long-term.
In normal circumstances, selling units in a property fund is fairly straightforward. However, the vote to leave the EU has led to some investment companies temporarily halting withdrawals from property funds. Aviva, Henderson, M&G and Standard Life have all locked in investors for the time-being.
This is because too many withdrawals in a short space of time could mean the fund has to sell assets at large discounts to make redemptions, and this would have a detrimental effect on those investors remaining in the fund.
Peer-to-peer
This involves a lending platform acting as an intermediary between investors and borrowers. The platform makes money by charging fees to both parties.
An investor decides how much they want to invest and, depending on the lending platform, how their money will be used.
The return from investing this way can be higher than traditional buy-to-let. Borrowers, meanwhile, can often get loans with lower interest rates than those available from a traditional lender.
Property crowdfunding
Another option for investors looking for a hands-off opportunity or portfolio diversification, crowdfunding involves multiple investors pooling their money to buy a property which is then let to tenants.
Various web platforms including Property Partner, Property Crowd and The House Crowd bring investors together and then identify and manage suitable properties.
Once enough money has been invested to buy a particular property it is purchased through a type of company called a Special Purpose Vehicle (SPV).
A crowdfunding set up, and the fact the property is owned by a company, negates the need for investors to pay higher stamp duty or worry about upcoming changes to the tax payable on rental income. However, there will be both purchase costs and fees for the ongoing management of the property.
If you do decide to invest in property, you may find our Tips and Advice for Landlords useful. For any more questions on property investment, get in touch with David Conway & Co on 020 8422 5222.
