Research by peer-to-peer real estate investment platform, easyMoney, reveals that residential equity growth provides the weakest investment returns and that expected profits can be more than doubled by investing in alternative areas of the property industry.
With the housing market slowing during this period of economic turmoil in the UK, easyMoney has analysed the expected returns across six avenues of property investment to see where investors’ money might be best placed.
Buying a home has always been considered one of the most secure and profitable ways to invest money, a narrative that has proven especially true since the COVID-inspired price boom of the past few years.
However, based on the most recent annual house price growth data, this may no longer be the case as the equity gain one can expect from a residential property purchase is now just 3.5% per year. If the market continues to struggle against tough economic conditions, this number could get even smaller in the coming months and years.
So, if traditional bricks and mortar isn’t performing, where might you be able to generate better investment returns?
The answer is unlikely to be Real Estate Investment Trusts (REITs) because they’re only delivering average returns of 4.4%.
Despite recent hefty rent increases, buy-to-let investment doesn’t look to be a great choice either, with expected annual yields sitting at just 5.1% based on an average house price of £286,489 and an average rental income of £1,229 per month.
For those who are ready to take a more professional approach to property investment, commercial yields look slightly stronger at 5.8%, and property bonds are offering an expected return of 6%.
But it’s Innovative Finance ISAs (IFISAs) that are giving the strongest performance at the moment.
An IFISA is a type of ISA that allows you to invest in peer-to-peer lending and crowdfunding while using your tax-free ISA allowance.
A cross section analysis of various IFISA products on the market, conducted by easyMoney, found that the expected returns currently on offer average 7.7%.
Jason Ferrando, CEO of easyMoney said, “During the house price boom initiated by 2020’s stamp duty holiday, basic bricks and mortar investments generated great returns for amateur or accidental investors – the latter being those who buy property for the purposes of living in it and for whom the subsequent equity growth is an additional bonus.
But now that market conditions have changed so dramatically, anyone who is looking to make profit from the UK property industry is going to need to build a more diverse portfolio and look seriously at alternative and emerging investment avenues, the best of which is clearly IFISAs.”