Getting on the property ladder – or anywhere near it, for that matter – can feel like
an impossible task these days.
But, with property investments, you can invest with amounts as little as £1 and, depending
on your options, you aren’t restricted to actually buying physical bricks and mortar.
If you want to know more, this video will take you through some of the key reasons why
people invest in property as well as your six main investment options and the risks
involved.
In the last decade, savings rates have consistently fallen well behind the rate of inflation.
So if you invested your money in a saving account you would have effectively lost money.
Over the same period, average UK house prices have risen above inflation, making property
investment a potentially very lucrative move.
Aside from the money-making potential, each of the six investment options I’m going
to run through come with their own additional benefits.
For example, if you buy-to-let you can collect a passive income through rent.
Property stocks and shares can add diversity to your investment portfolio.
And, for some, property investments simply add a little peace of mind as they can feel
like more tangible investments compared with other stocks and shares.
If you don’t have the cash to buy a house, investing in the stock market could be a good
option as, with the right platform, you can invest with as little as £1.
Adding property to your wider portfolio could lend diversity to your investments which could
help mitigate your investment risk.
The risks: Even with indirect property investments, such
as through stocks and shares, you’re still vulnerable to the same fluctuations in rental
demand and property prices that affect buy-to-let owners.
Property funds can also be forced to stop trading if lots of investors want to sell
at the same time, so you’ll be blocked from selling any of your investments until these
restrictions are lifted.
And, just because you’re buying shares in property companies, it doesn’t mean your
investment is any less risky.
Wider economic factors could still see the value of your shares fall instead of rise.
Buying a property to lease out to renters is a popular investment option.
You’ll want to thoroughly research the area or neighbourhood you’re looking to buy in
to ensure there’s good rental demand and competitive rates.
Even with a buy-to-let mortgage you’ll typically be expected to have a minimum annual income.
And it’s worth knowing that buy-to-let mortgages usually require a higher minimum deposit – typically
around 20% – and the interest rates tend to be higher than on conventional residential
mortgages.
The risks: Between safety certificates, maintenance and
mortgage repayments.
Plus, finding and managing tenants, a buy-to-let investment can be a time-consuming and costly
endeavour.
If you don’t keep up the payments, you risk your property being repossessed.
And there’s no guarantee you’ll make a profit even if you decide to sell.
Property developing, otherwise known as “flipping houses”, typically involves buying a property
in need of work, doing a load of snazzy renovations and putting it back on the market at a higher
price.
Be mindful that watching a few episodes of Homes Under the Hammer doesn’t qualify you
as a DIY expert.
Even with a team and experience behind you, flipping houses is both a full-time job and
a huge financial commitment.
The risks: So, if that cheap fixer-upper feels too good
to be true, chances are it is, and you could end up forking out for fundamental repairs
and maintenance.
Be aware that capital gains tax could apply to any profits when re-selling a property
that has not been your main residence.
And consider the risk that, if renovations take longer than expected and the housing
market takes a downturn, you could lose some of your projected profits when you sell.
These are essentially stocks and shares ISAs, where your money is invested in property funds
that purchase buy-to-let properties.
When it’s going well, it’s a win-win as you can benefit from both the rise in property
value and the rental income.
Plus, as it’s an ISA you can invest up to £20,000 a year and won’t pay tax on any
profits.
The risks: Remember, no stock market investment is without
risk and the value of your shares could go down as likely as they could go up.
With land banking schemes you basically buy a plot of land without planning permission,
with the aim of making money from the increase in value when it does.
The risks: Obviously this is a very risky strategy as
the land may never get planning permission (especially if it’s protected).
These schemes are also not regulated by the Financial Conduct Authority and many can turn
out to be scams.
Peer-to-peer (or P2P) lending is where a peer-to-peer company collects money from its investors
and lends it out to individuals in the form of buy-to-let mortgages.
Because your investment is split and lent out to a large number of borrowers, and therefore
a large number of properties, your investment is less affected should one borrower default
on their loan.
The risks: That said, P2P lending isn’t without risk
as these investments aren’t protected by the Financial Services Compensation Scheme
(FSCS).
So if the P2P company goes bust, you could lose your investment.
The type of investment you make will largely depend on your goals.
Are you planning on making this your full-time job?
Maybe you just want a little extra income every month or to add some spice to your investment
portfolio.
For more in-depth information on property investments, head to finder.com/uk.
Links in the description below.
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