HOW TO GET INTO PROPERTY WITHOUT ACTUALLY BUYING A HOUSE
This may sound strange, however to invest in a property does not have to mean buying a home. Here are a few ways to use as alternatives. Investing in property is always a good idea. Your asset and its value is very much likely to increase in the future, while during that time it can provide a steady rental income. And, of course during this journey your property investment could also be used as a roof over your head too. However buying property as an investment is no walk in the park – because when you have also got the home you live in to pay for. You will need a large amount of capital as a deposit (at least 20% of the property price for buy-to-let) and to be able to be in position to qualify for a mortgage. You’ll also need money to help to cover associated costs. And Stamp Duty on investment homes has become much more expensive since April 2016 but since 2018 it first time buyers will pay no Stamp Duty.
Once you have your new home, chances are you will want to hire a lettings agent to find the right tenants and maybe even manage the property for you, which you’ll have to pay for. It could be weeks or even months when you are without any tenants in your property, this is known as ‘void periods’ which means you’ll get paid no rent at all. Rent will be taxable income and as the landlord, bills for anything from faulty boilers and clearing drains, will be all on your doormat. But if all this seems too much, here is some good news. There are other ways you can invest in property without buying a home or being responsible for it. Peer-to-peer lending If you want to get in the residential property market, but you are not in the position to be a buy-to-let landlord, peer-to-peer lending could be a solution. Peer-to-peer lending is when two parties are brought together, one lends and the other borrows. This process is conducted through a special online platform rather than a traditional bank or building society. This idea is that investors (also known as ‘lenders’) get a much better return on their cash. Peer-to-peer has become big business over the years – this is due to low interest rates on savings. The type of investments available have also varied. Now, as well as lending money to individual consumers as peer-to-peer started out, you can also lend to start-up businesses and even to investors in residential property.
Peer-to-peer providers such as Landbay take your money and will lend it out to residential property investors in the form of buy-to-let mortgages. What you invest – typically a minimum of £100 (with no upper limit) – is broken up into little pieces and spread across lots of these types of loans. Start investing with £100. A company called Landbay offers investors a new way to earn a decent monthly income by lending against residential buy-to-let properties. Learn more As loans are secured against the properties in different areas throughout the country, the risk to you is spread which mitigates the effect of any one borrower defaulting. You have the option to retain some access to your cash or, just like with a building society bond or bank, put it away for terms ranging from 12 months up to between three and five years, this can depend on the provider. Generally the longer you tie up your cash the better return you will receive.
Remember, all investments have a risk, and tax rules apply
However, even flexible trackers and easy access peer-to-peer deals are likely to beat the best interest rates on a standard high street savings account.
Though the peer to peer industry has been regulated by city watchdog the Financial Conduct Authority (FCA) since April 2014, there are some things every investor should know:
Your money is not protected: The Financial Services Compensation Scheme (FSCS), would protect the first £75,000 of your funds were it held in traditional building society or bank, does not apply to peer-to-peer. Rather, most providers carry ‘provision funds’ which are created to pay out if the company was to defunct. Since April 2017, the FCA says that all peer-to-peer providers will have to hold a capital buffer of at least £50,000.
What you see may not be what you get: Eye-popping interest rates advertised by peer-to-peer lenders may not be factored in the annual fees and bad debts, so be sure check with the provider. Also, unlike regular savings accounts which are automatically taxed at the basic rate of 20%, returns from peer-to-peer will be paid gross of tax. It will therefore be your own responsibility to declare the income in your annual tax return.
You won’t see where your money is: Peer-to-peer providers for Residential property say they only lend to experienced property investors with a proven track record of success and low loan-to-values on their developments or homes.
If you want a slice of the cake in commercial property market, without being responsible for the bricks and mortar, you could put your cash into property funds. But if you are new to property investing you’ll need to do a bit of research first.
A property fund is actually just an OEIC (open ended investment company) or a unit trust which just happens to be invested in property. It provides an opportunity to establish a financial interest in the kind of Properties you would not be able to buy direct.
So how do property funds work? OEICs and unit trusts are known also as ‘collective funds’. This is because your money will be together with that of other investors.
To get your share you will need to buy a few of shares (in an OEIC) or units (in a unit trust). The cost of just one of these can change on a daily basis depending on how the fund is performing. This means the fund size can decrease or increase as investors buy and sell like you.
An allocated fund manager is responsible for investing these funds in a way that will get the best returns. This could be rental income from commercial property for rent, such as warehouses or office blocks or industrial units to let.
It could be from interest earned on a bridging loan on commercial property for sale, or from a development loan on anything from a chain of sandwich shops to a whole retail park.
The property stock can be solely in Great Britain, around Europe, Asia, anywhere This depends on the property fund. The returns from these carefully chosen property investments could be reinvested back into the fund.
You will have to pay for your investment to be managed this way, usually, it is between 1% and 1.5% a year.
However, you could hold a property fund within your allocated stocks and shares ISA allowance.
If you are just commencing in property investment of like this kind, you should always see an independent financial adviser.