How to invest in residential property without buying a home
A generation of people are struggling to afford the huge deposits needed to buy a house, and the government has made the buy-to-let market less attractive by hiking taxes on private landlords.
However, new financial models mean that anyone can now reap
the rewards of the property market without the encumbrance of an expensive mortgage, hefty tax bills or nightmare tenants.
Lately, a large number of property-based investment companies have launched, partly encouraged by the creation of the Innovative Finance ISA (IFISA), allowing investors to capitalise on ‘Generation Rent’.
With a minimum investment from as little as £10 – a tiny fraction of the £90,000 average deposit required to buy a house in London – an increasing number of people are turning to peer-to-peer (P2P) lending as a way to get exposure to the UK property sector.
The technology that underpins the P2P sector – matching borrowers
with lenders – works well in the mortgage market, giving landlords the finance they need to purchase properties, and allowing investors to profit from the property market by earning decent interest rates.
One such company is Landbay which allows landlords to get a mortgage, funded by a pool of investors, secured against the property they wish to purchase; investors – lenders – achieve stable income, currently at 3.54%.
Investors can achieve a decent return from the property market, and a relatively safe hedge for their cash against inflation, from a modest £100 – with none of the headaches that come with being a landlord.
Those seeking higher returns in return for taking more risk may look beyond P2P lending and consider equity investing. Property Partner is the biggest name in this field, offering investors shares in firms that own rented properties; since its launch in 2015, returns have hit 7%.
Another model is the Real Estate Investment Trust (REIT) operated by Bricklane.com which allows its investors to make money out of the rental income in the buy-to-let market and changes in the value of the properties owned.
‘anyone can now reap the rewards of the property market’
Whereas the P2P platforms allow investors to lend against properties, with Bricklane you buy shares in either the London property portfolio (+ 10.7% in the 10 months since it launched), or the Regional fund (+ 8% p.a.); their structure allows them to be sheltered in either an ISA or SIPP account providing a tax-efficient way to invest in UK residential property, delivering stable returns and none of the volatility of equity markets.
Bridging loans are another facet of the huge property market, providing short-term finance to fill the gap between buying (or building) a house and selling an old one; they are increasingly being used by landlords as buy-to-let rules get tougher and taxes rise.
Once the preserve of sophisticated and experienced investors, investment platforms have made it far easier for ‘normal’ investors to access bridging loans as an investment; Octopus Choice, JustUs, CrowdProperty and Wellesley & Co are just some of the players in this space.
The UK’s much trumpeted housing crisis is largely due to a lack of supply; the lack of finance is a major barrier to building new homes
and alternative investment companies can help by providing development finance for residential properties.
Since it launched in 2013, LendInvest, has helped investors to channel almost £1.3bn to fund more than 4,000 much-needed UK homes; it has four investment channels, allowing you to invest in real estate-backed loans that have been granted to professional property investors and developers.
Its online platform allows high-net-worth investors to self-select
and manage a portfolio of loans; each loan has detailed descriptions of location, value, duration, borrower’s intentions, and will have its own distinct rate of return depending on the risk profile.
As with buy-to-let, development too offers opportunities for those seeking higher returns to look beyond loans to equity crowdfunding
Shojin Property Partners is one such company, providing equity funding for property developers, and co-invests alongside investors in every project; while a bank loan will largely fund the project, Shojin provides the bulk of the equity from the developer and engages retail investors to fund the balance.
While the risk associated with such an investment is considerably
higher, and the minimum investment is £5,000, returns could top 20%; having done all of the research on a project, Shojin’s logic is that it should participate at the equity level, because that’s where the returns will be the greatest.
Retail investing in property development could become significant in alleviating the country’s housing crisis by building more homes, and is another way to benefit from the UK property market, although without directly helping by putting a roof over your head.
Some of these companies offer an IFISA option, which means
you can benefit from the government tax breaks too, as you invest your way onto the property ladder.