Industry Insider: Invest in property without the headache of buy to let
But with the introduction of the Housing Act of 1988, when assured shorthold tenancy came into being, buy-to-let investing became much more popular, fuelled by Britain’s obsession with homeownership.
Almost 30 years later, buy to let has grown so significantly that blame has been laid firmly at its feet for pricing many first-time buyers out of the market. Cue a slew of Budget measures to make buy to let less attractive and help people get on to the home ownership ladder.
The good news is if you want to invest in property, without the costs, headache and uncertainty of buy to let, you can invest via a fund.While it’s not a substitute for buy to let, it can bring you some of the benefits, as well as others you may not otherwise be able to access.
TM Hearthstone UK Residential Property fund invests in private sector rented housing (as well as holding a bit in cash and property company shares). It aims to capture UK house price growth and provide an element of income return – there are no guarantees though.
It invests in flats to detached houses and favours newer builds, as maintenance and management costs tend to be lower. The volatility of the fund has been quite low compared to other asset classes. It is worth a closer look.
Commercial property is very different to residential property, but has its own merits. It is an area that would be difficult to invest in on your own, as the price of the commercial buildings are so very high. However, even the smallest investor can invest in a fund that buys and rents out properties such as offices, shops and warehouses, receiving a portion of this rental income in return.
The UK’s commercial market has seen ‘supersized’ capital growth over the past few years. Andrew Friend, head of UK Property Distribution at Henderson Global Investors, says he expects more “normalised” returns in 2016 and beyond, driven mostly by rental income rather than increasing asset values.
Another way to go is a fund that invests in property- related companies such as house builders, construction materials manufacturers and listed real estate investment trusts (Reits).
Because these companies are listed on the stock market, you will probably see more volatility in a fund like this than you would from a ‘traditional’ property investment. But the idea is that over the longer term, the companies’ earnings and returns should be quite closely linked to the housing cycle.
I like the F&C Real Estate Securities fund for access to the UK and major European-listed property markets.
When it comes to European markets, a little international property exposure may not be such a bad idea right now.The outcome of the Brexit referendum could go either way but if we do vote to leave, a bumpy period is predicted for all British assets, including property.
I like the Premier Pan European Property Share fund for geographic diversity across the continent. It provides access to Europe’s strongest markets in Germany, France, Sweden and Switzerland.
You can also find property funds with a more global focus or an Asia Pacific focus.
- Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Mr McDermott's views are his own and do not constitute financial advice.
Darius McDermott is the managing director of Chelsea Financial Services and FundCalibre.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.