From investing in property loans to shares in a rental property, there are ways to invest in bricks and mortar that are more hassle-free than becoming a landlord.
Property has long been a favourite investment of Brits.
There’s something reassuring about putting your money into something tangible, like bricks and mortar, rather than stocks and shares.
However, recent years have made life far more complicated for would-be property investors.
The Government has introduced a host of changes, from higher rates of stamp duty on second home purchases to reduced tax relief, which have made actually becoming a landlord much less attractive.
So while professional investors, for whom property is their business, have continued to add to their portfolios, those landlords who had one or two properties have increasingly sold up.
But if you still fancy trying to pocket a decent return from property, there are plenty of alternative ways to do so without having to become a landlord.
Want to go the traditional route? Read our guide to buy-to-let
Brickowner
Brickowner provides funding for property developers and asset managers, and then offers normal investors the chance to back their projects.
So for example, right now investors can put their money into a 24-home new-build development in Cambridge, while previous deals have included lending against a commercial property portfolio (which included Premier Inn hotels) and a student housing complex serving the University of Chester.
Your money is invested via a special purposes vehicle (SPV), with you buying shares in the relevant SPV depending on which investment has caught your eye.
This is essentially a separate company, with the idea of giving you more protection should Brickowner hit the wall.
There is inevitably still the risk of the property firms falling behind on their repayments though, which is important to bear in mind.
The returns on offer vary depending on the individual investment, but Brickowner says it targets returns of 8-10% a year.
All investments are over a fixed term, and may pay dividends as well as a final return.
You can invest from as little as £100.
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The House Crowd
With The House Crowd, you invest directly in loans offered to developers and property investors.
The loans on offer tend to be over shorter time periods, currently ranging from eight to 18 months, and with target interest rates of around 10%.
You can enjoy tax-free returns too by investing via an Innovative Finance ISA, or even through your SIPP. Rather than pick individual investments, you can auto-invest into one of the firm’s three portfolios, based on how much risk you’re willing to take on.
Its ‘cautious’ profile ‒ which includes loans at an average loan-to-value (LTV) of 60% ‒ has a target return rate of 5%, while its ‘bold’ portfolio aims for a rate of 7%, but includes loans at an average of 75% LTV.
Again, there is a danger that the borrowers fall behind on the loan, or that the value of the property falls, which will impact your rate of return.
Property Partner
Property Partner allows you to invest in a host of different properties, from residential to commercial or student accommodation.
You aren’t investing in loans here, but rather purchasing a share in the actual properties themselves.
You can invest in individual properties, or go for one of the firm’s built ‘investment plans’, which are made up of a portfolio of separate loans.
These are built based on how you want to get income from your investments, so there is an income plan (focusing on dividends), a growth plan (focusing on capital growth) and a balanced plan, which is a bit of both.
Property Partner also offers the chance to get tax-free returns through its ISA.
After five years, investors are given the option of selling their stake in a property at market value.
You can attempt to sell ahead of time through the site’s resale market, though this is entirely dependent on being able to find other investors on Property Partner who are willing to take those shares off your hands.
Each investment goes through an SPV, so you are protected should Property Partner hit the wall.
There is still the danger of losing money should the value of the property fall over time, or if the property doesn’t attract the level of rents expected.
CrowdProperty
Finally, there’s CrowdProperty which makes a big play of the security offered to investors.
Again, it’s a platform that allows investors to put their money into loans offered to property professionals, with CrowdProperty suggesting that you can pocket up to 8% per year.
It’s another site that allows you to keep your investments within the Innovative Finance ISA wrapper, so you don’t pay tax on your returns, while it also provides an auto-invest tool which helps you back each and every project on the platform.
CrowdProperty trumpets its ‘shield’ which it suggests is part of the reason that no investors have lost money when using the site to date.
This is made up of three parts ‒ the rigorous due diligence it conducts on borrowers and their projects, the fact it secures a first charge against the property (giving it the legal right to take ownership of it should the borrower fall behind) and the extensive experience of its team of underwriters.
Because you’re investing in loans, the term of each investment is relatively short ‒ usually up to 18 months.
The fundamentals don’t change
Just because you’re investing in property loans, or a small slice of an investment property, rather than buying the entire house itself the actual fundamentals of your investment outlook shouldn’t change.
For example, it’s still really important to do your due diligence on each investment to get a good idea of just how attractive a prospect it really is, rather than being tempted by any extravagant interest promises.
Similarly, diversification is crucial. Spreading your money across a handful of different investments should offer you a little bit of protection should returns not quite be up to scratch, rather than putting all of your eggs into a single basket.
It’s also important to keep a close eye not just on how your investments are performing, but also the overall performance of any crowdfunding site you use. Just last year Lendy, a property crowdfunding platform, went bust leaving 22,000 investors out of pocket.
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