Buying a property can be costly, time-consuming, and risky, but there are other ways to invest in property that are more accessible. In this blog, we’ll explore the alternatives for those looking for a property investment that doesn’t require a purchase.
1. Peer-To-Peer Lending
Peer-to-peer investing involves lending money to property developers or landlords through an online platform and earning interest on your loan. When you lend money to a developer or landlord who wants to fund their projects, you can choose projects that suit your goals, duration, and risk level.
When doing business with property developers, understanding property development will give you the advantage of spotting opportunities before they go public.
You receive paid interest from the borrowers and get your money back when the project runs its course or the loan term ends. If you invest for long periods, you can expect a rate of return higher than a savings account.
Peer-To-Peer lending tips:
- Research – before investing in a platform, look at its reputation, track record, and compliance. Pay attention to how they vet borrowers, assess risks, and disclose information.
- Review – examine your investment opportunities carefully and look at the borrower’s credit, the project’s feasibility, and the expected returns. Understand the loan terms and conditions, such as interest rate, repayment schedule, and fees.
- Diversify – investments across multiple borrowers or projects help reduce risk. Consider diversifying across different property types or platforms.
- Liquidity – peer-to-peer lending investments are not as liquid as traditional investments, and you may be unable to withdraw your funds before the loan term ends.
While peer-to-peer investing can come with lucrative returns, it’s one of the riskier options. Small projects are more likely to fail, and there’s no guarantee that the borrowers will repay you. You might also find yourself paying taxes on your returns or fees to the platform.
2. Property Funds
Property funds are collective investment schemes that pool money from investors and invest in a portfolio of properties. This includes property-related assets like commercial buildings, retail parks, and office blocks. You can buy and sell units or shares in these funds and benefit from income and capital growth.
Open-ended property funds let you trade shares or units daily, weekly, or monthly. You get your money back in a set time, which varies by fund and market.
Closed-ended property funds issue a fixed number of shares or units trading on a stock exchange. These funds last for a certain period, during which you can’t redeem your shares or units directly. You need to find a buyer to get your money back.
- Risk Assessment – property funds have risks related to the market, economy, tenants, and properties. Know your risk level and investment goals beforehand.
- Professional Management – check the fund manager’s and team’s skills and experience in property selection and management. A good management team can handle challenges and make smart decisions.
- Regulatory Considerations – learn about the UK regulations for property funds. The Financial Conduct Authority (FCA) regulates property funds to protect investors and ensure transparency. Make sure the fun and its manager are authorized and regulated.
- Past Performance – review the fund’s historical performance to see its track record. Compare the fund’s performance across different market cycles to see its consistency.
Keep in mind property funds tend to be illiquid, which means you won’t always be able to sell your units or shares when you choose. It’s essential to understand the risks involved, like their susceptibility to the effects of market fluctuations, management fees, and charges.
3. Real Estate Investment Trusts (REITs)
REITs operate income-producing properties like hotels, warehouses, and shopping centres. You’ll find them on the stock exchange; their shares are tradeable like any other company.
It’s wise to examine a property yourself to know where your money’s going. REITs must allocate a minimum of 90 percent of their taxable earnings to shareholders as payouts. As such, it’s great for receiving a steady income stream.
- Research the REIT – before buying REIT shares, do your homework. Look at the company’s properties, management, finances, and performance. Ensure they invest in real estate that suits your goals and risk level.
- Assess dividend yield and growth – dividends are essential for REIT investors. Check the dividend yield to see how much income you can earn. A higher yield may be good, but make sure it’s not too high to be realistic. Check the dividend growth to see how much the payouts can increase over time. This can affect your income and capital gains.
Keep in mind they’re also subject to share price volatility, taxation, and market risks.
4. Property Crowdfunding
Property crowdfunding involves pooling money with other investors and buying a share of a property through an online platform. The fund is run by investors who use strategies like digital marketing and working with real estate lead generation companies to find parties to contribute to a purchase. Once part of the “crowd” you can earn income from rent and capital appreciation, depending on the type and performance of the property.
Property crowdfunding points to consider:
- Returns – returns depend on the type of investment (equity or debt), the property’s performance, the fees charged by the platform, the tax implications, etc. Ensure you read the offer document and understand each investment’s terms and conditions.
- Know your platform – usable platforms for property crowdfunding vary in reputation, track record, selection criteria, and customer service. Before investing, always compare different platforms and check their reviews and ratings.
Property crowdfunding carries risk because you have no control over the property or the platform, and you may face liquidity issues if you want to sell your share. Like peer-to-peer lending, you may also have to pay fees to the platform or taxes on your returns.
5. Property Stocks
Property stocks are shares of companies that operate in the property sector, such as developers, builders, and estate agents. You can trade shares on stock exchanges and benefit from dividends and share price growth.
Property stocks are affected by how well the economy is doing, and these factors include:
- How confident people feel about spending their money.
- The fluctuation of supply and demand for properties.
- The level of Inflation.
- Governmental rules.
They impact the profitability and potential of property stocks and their performance compared to other industries and types of investments.
When you assess property stocks, look at the following measures:
- Dividend yield
- Price-to-earnings (P/E) ratio
- Net asset value (NAV)
- Return on equity (ROE)
- Price-to-book (P/B) ratio
A high dividend yield could mean that a property stock pays out a significant portion of its profits or has a high dividend growth rate. A low P/E ratio might mean a property stock is undervalued or has good potential for earnings.
A high NAV might suggest that a property stock has many valuable assets compared to what it owes. A high ROE might indicate that a property stock uses capital efficiently to make profits.
Keep in mind that property stocks are also subject to taxation, market risks, and share price volatility.
Investing without buying is possible through numerous avenues. However, before you take the plunge, always consider your risk appetite and investment objectives before deciding which option is best for you.