Buy-to-let doesn't look as lucrative as it once did, but there are other ways to invest in property.
The last few years have not been kind to landlords.
Already tax breaks are being cut, with lettings relief scrapped entirely from April 2020, a move expected to cost landlords an extra £150 million in total.
It’s not looking like a great time for buy-to-let. Fortunately, there are several other ways to invest in property rather than going down the usual buy-to-let route. Could any of the following make you money?
Buying a holiday let means letting a property to short-term holidaymakers rather than long-term tenants.
According to figures from specialist broker Holiday Let Mortgages, if you own property in sought-after locations you could pocket three times the annual income of a buy-to-let investor.
However, you’ll need a special holiday let mortgage and a hefty deposit if you don’t buy with cash.
Holiday lets are pretty hands-on. You’ll also have to deal with bookings as well as cleaning the property in between guests.
If you want a completely hands-off investment then how about property crowdfunding?
Platforms such as Property Partner enable people to invest in individual residential properties, just as they can in company stocks.
Investors then receive a monthly rental income – and benefit from any capital growth – in direct proportion to their ownership. The property is fully managed so you won’t have to deal with tenants or the hassle of repairs.
The platform also enables investors to offer their property holdings for sale via a designated secondary market.
Real Estate Investment Trusts
A Real Estate Investment Trust or REIT is a company that owns and, in most cases, manages property on behalf of shareholders. The property can be commercial, office, industrial or residential property, or a combination of these.
Investment in a REIT allows people to invest in buy-to-let property without having to buy property directly and to diversify their investment over different properties, reducing risk.
REITs can be tax efficient compared to ordinary property funds, as they don’t have to pay Corporation Tax on profits and gains from their UK property rental business. In exchange, they must distribute at least 90% of their taxable income to investors – and this is taxed individually.
REITs are publicly listed which means it is easy to buy and sell shares. This makes them more liquid than holding individual properties.
If you’ve got a social conscience you might want to invest in a Real Estate Annuity Plan (Reap).
This involves lending money to an affordable housing provider which renovates derelict properties then lets them to low income tenants and manages the tenancies.
The minimum investment is £15,000 and you need to commit to five years. Lenders receive a fixed income each month.
The company behind Reap, the Equfund Group, says investors can earn returns of up to 7%.
Unlike with a REIT, Reap involves your money being invested in one property, not spread among several properties, so it’s arguably more risky.
Another option is specialised peer-to-peer lending, which lends money to landlords.
Landbay, for example, enables investors to invest in the UK's buy-to-let mortgage market via its online peer-to-peer lending platform.
The business model matches investors' funds to buy-to-let mortgages, so all the loans are secured by residential property.
Landbay advertises a headline fixed rate of 3.54%.
The main downside is risk – peer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS).
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