Peer-to-peer real estate investment platform, easyMoney, has looked at the various ways in which amateur investors can get involved with the property market, revealing that some options are far more accessible than others.
Despite a cooling market, property investment is still a popular and lucrative form of investment. easyMoney has analysed the seven main routes for the amateaur investor to get involved in property investment, weighed up the pros and cons of each, and found that some are best left to the experts.
Buy to let
Buy to let is the process of buying a property and then renting it to someone else. The owner receives monthly income from rent and benefits from the likely value increase of the property over time.
With buy to lets, you have full control over your investment, choosing what to buy and how much to spend on it. However, the price of entry is high. The average UK home currently costs £289,818, so you’ll need around £72,455 (25%) for a deposit. You also have to consider the ongoing maintenance costs and admin associated with a buy-to-let, even as an amateur investor with just one property.
Property development
If you buy a dilapidated property or plot of land and develop it into a desirable home, there’s potential to turn a profit. As with buy to let, you are able to choose how much you invest and how the money is spent. But, the initial expenses can be sizable and the process can take a long time to complete. Do you have the money up front to afford it? And can you afford to wait a long time before getting it back?
Real estate investment trusts (REITs)
With an REIT, your money is thrown into a pile with other people’s money and used to invest in property. This means, instead of having to be able to afford a whole property, you can invest as little as £500 and own a portion of a property. As, or if, the value of the property goes up, so does the value of your stake which you can choose to sell. However, you have no control over how the money is invested and, once invested, it is at the mercy of market fluctuation.
Peer to peer (P2P) investment / IFISAs (For property-backed ISAs)
Online P2P platforms connect people who want to invest money with those who want to borrow it for the purposes of developing property.
P2P lending enables a flexible level of investment, usually from as little as £100, making it by far the most accessible option for amateur investors. But, it’s important to choose your P2P lending platform carefully as some will erode your profits with all sorts of hidden fees, so you need to ensure you’re going with a trustworthy, reliable brand.
Property bonds or loan notes
Developers often sell bonds to raise the funds required to get a development off the ground. They can provide very high rates of interest which means good profit for investors but this is because of the high level of risk involved. For example, the development may never be completed, or the developer could become insolvent. As such, it is better left to more experienced investors.
Real estate stocks/shares
This is a case of investing money into property companies that are listed on the stock market. You can choose exactly how much you invest and with whom, but when buying shares on a small scale, the fees are often high. It also requires you to be constantly monitoring the stock market and there is a real risk that the value of your investment will go down rather than up. Best left to the experts..
Private funds
Private funds pool together money from individuals to purchase property. The fund will then hire people to manage the investment and charge a fee for the privilege. The potential returns are high, but so too is the amount that each person needs to invest, so it’s not a great option for amateur investors. Furthermore, your profits are reliant on the competence of those who manage the fund.
Jason Ferrando, CEO of easyMoney said, “Property investment is one of the most reliable ways of making your money work for you. Despite the constant ebb and flow of the housing market, its reliable long-term health is always likely to yield a return on your investment.
The problem is that buying a property requires a notable amount of upfront cash and then a long-term mortgage. That’s why alternatives such as P2P lending are so important and incredibly valuable. They democratise property investment so that it’s not just the wealthiest who get to benefit from it, anyone can become a property investor.
But do be careful, because while easyMoney won’t charge you hidden fees (no fees are charged to the lender (investor)), many other platforms will.”
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