What are the Different Ways to Start Investing in Property? (A Beginners Guide)

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Is property investment a good investment? What’s the best way to invest in property? How much money do you need to invest? These are all valid questions when it comes to starting out in the property investment world. If you’re living in the UK, its a common goal for most people to invest in eventually owning their own home. This is evident in the significant rise in house prices over the last number of years, which has also led to property investors making a substantial amount of money.

More traditional investments such as buy to let properties require a large amount of capital to begin with, even for a smaller property, which is why alternative investments are becoming more popular such as peer to peer lending, real estate investment trusts (REITs) and property loan notes as they have a lower entry for investment. If you’re thinking about investing in property we’ve listed some of the common ways to get started, along with some of the advantages and disadvantages that may arise along the way.

Buy to Let Property

Putting your capital into property is still considered a relatively safe long term investment. If you can find the right property in a great location and can secure a good deal on a mortgage, then buy to let could be a practical proposition for you. When investing in buy to let properties, low property prices, and strong demand for rentals is what you should be looking for. As well as tenant demand, your buy to let investment should have a decent rental yield and capital growth so you can make a healthy return on your investment over time. If you’re considering a buy to let property, it might be worth contacting a property investment company such as RWinvest who provides people with exciting and opportunities to invest in throughout cities in the UK.

The main aim is to generate enough income to cover mortgage repayments and offset any additional costs against tax. On the flip side, even if tenant demand is high, you will still need to find people to rent the property and costs can rapidly stack up if it is vacant for long periods of time.

Real Estate Investment Trusts (REIT)

REITs provide an opportunity for property investors to own assets without having to physically buy a property. In the UK, real estate investment trusts are property investment companies that are listed on a recognised stock exchange, and work in a similar way to mutual funds, with the primary difference being, the fund invests in property instead of in stocks.

The average annual return on investment from REITs stands at around 10% in the UK, and as most of the taxable income is distributed to shareholders by way of dividends, it is also exempt from tax. Some advantages to this type of investment might be the competitive rates on return as well as the potential for long term share price appreciation. However, you must also consider that rising interest rates may have a negative impact on REIT’s performance, and like any publicly traded stock, these investments are also subject to market fluctuation.

Property Loan Notes

Much like REITs, another investment strategy that’s becoming more and more popular is property loan notes or bonds. Sometimes commercial developers need to raise money in order to get their projects up and running, and will often sell bonds as a way of doing so. In essence, you as an investor would be loaning money to the developers and would receive a fixed annual interest rate on your investment loan, which is often relatively high.

Property loans or bonds are usually for more experienced investors as there are greater risks involved, such as the credibility of the developer and whether or not you’ll be eligible to invest in the first place. However, loan notes can offer some of the highest returns available.

Peer to Peer Lending

This type of property lending directly connects borrowers with lenders eliminating the need for a third-party financial institution, meaning investors should get a higher return on their capital. This investment also has a low bar entry so you can invest as little as a £100, making it a more attractive option for first-time property investors. Although there are some things to watch out for that could put investors at a disadvantage such as hidden fees, as well as the risk that you don’t always know where your money is going.

Property ISA’s

The property market is seen to be a lucrative investment especially with property ISA’s offering a quick and affordable way to invest. These ISA’s can be opened with as little as £100 up to £20,000 per annum, and like REITs is tax-free and free of capital gains. Some things to take into account, property ISA’s are not regulated by the Financial Conduct Authority and it may take time to withdraw your investments.