How to be a property investor: Alternative ways to invest in property

There are three ways to invest in property that offer a more hands-off investment than traditional buy-to-let. One is via the traditional commercial property fund. Two more innovative developments are peer-to-peer (P2P) lending and property crowdfunding.

Commercial property funds

When you invest in a property fund your money buys shares or units in the fund. It is pooled together with other investors and a fund manager uses the money to invest in commercial property such as shops, office blocks, retail parks and warehouses. Returns are generated from rent from tenants and capital growth over the long-term.

In normal circumstances, selling units in a property fund is fairly straightforward. However, the vote to leave the EU has led to some investment companies temporarily halting withdrawals from property funds. Aviva, Henderson, M&G and Standard Life have all locked in investors for the time-being.

This is because too many withdrawals in a short space of time could mean the fund has to sell assets at large discounts to make redemptions, and this would have a detrimental effect on those investors remaining in the fund.

You can also invest in commercial property investment trusts. These are traded like company shares on the London Stock Exchange and are still available to buy and sell following the Brexit vote.


Peer-to-peer lending

This involves a lending platform acting as an intermediary between investors and borrowers. The platform makes money by charging fees to both parties.

An investor decides how much they want to invest and, depending on the lending platform, how their money will be used.

The return from investing this way can be higher than traditional buy-to-let. Borrowers, meanwhile, can often get loans with lower interest rates than those available from a traditional lender.

Peer-to-peer property investment

Diagram courtsey of LendInvest.

Platforms offering peer-to-peer property investment include Landbay, LendInvest, Proplend and Wellesley & Co.

Landbay offers buy-to-let residential mortgages in England and Wales, focusing on professional landlords who tend to hold their property portfolios in special purpose vehicle (SPV) limited companies. You can invest as little as £100 in a tracker at 3.99% a year.

LendInvest offers loans secured against property. It offers annual returns from 5% upwards.

Proplend focuses on loans secured against income producing commercial property in England and Wales. It offers investors higher rates of 6.44% to 9.38% a year.

Wellesley & Co  ‘secures’ its loans against property assets, and only ever lends a conservative percentage of a property’s value (typically no more than 75%). It offers annual interest of up to 3.75%.

“Investing in property through a marketplace cuts out many of the negatives of being a landlord,” says LendInvest CEO and co-founder Christian Faes. “You don’t have to worry about stamp duty, capital gains tax, or gaps in tenancies. And you'll never get a call from a tenant in the middle of the night about a broken down boiler.

“Instead you do get to enjoy a great, consistent return, and can diversify across a range of different properties much more cheaply than if you wanted to build your own traditional property portfolio."

Property crowdfunding

Another option for investors looking for a hands-off opportunity or portfolio diversification, crowdfunding involves multiple investors pooling their money to buy a property which is then let to tenants.

Various web platforms including Property Partner, Property Crowd and The House Crowd bring investors together and then identify and manage suitable properties.

Once enough money has been invested to buy a particular property it is purchased through a type of company called a Special Purpose Vehicle (SPV).

A crowdfunding set up, and the fact the property is owned by a company, negates the need for investors to pay higher stamp duty or worry about upcoming changes to the tax payable on rental income. However, there will be both purchase costs and fees for the ongoing management of the property.

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