Most investors know that property is a key component of any sensible investment portfolio. UK property has been an effective and robust way to store value, generate income and protect against inflation due to long term factors that keep demand high and constrain supply. These include population growth, limited land for building and tight planning regulations. It’s also allied to a robust and well-organised legal system, which has developed over hundreds of years.
In this series, we’re exploring the four ways you can gain exposure to the UK property market. We’ll weigh up and pros and cons of each type of property investment, so you can make an informed decision as to how you can incorporate this asset class into your investment portfolio
Investing in equity via property crowdfunding
Crowdfunded property equity investment is a small but rapidly growing section. This is where a number of investors club together and purchase a property or a block of properties, facilitated by a company specialising in this activity, such as Property Partner (disclosure – the writer is CEO of Property Partner).
Each property is listed for crowdfunding prior to being acquired. The company will source suitable properties according to a published strategy, complete the due diligence and purchase, and then manage the properties to best advantage.
Unlike a fund or trust, as an investor you can make a decision as to exactly which properties you wish to invest in because essential information, such as the solicitor’s and surveyor’s reports, is made available. A business case for each investment is provided via the platform, showing forecast yield and capital growth. Returns for each property are paid directly into your account via the platform.
You are able to capitalise on the skills of the property experts within the company, whilst at the same time getting visibility, transparency and choice of the properties their money is invested in. This contrasts to funds and REITS where you are exposed to all properties within a fund, without knowing much about the individual properties. With crowdfunding, the investment properties are fully managed by the company, and you will have an online account in which all your investments, dividends and charges are shown.
Some of the larger property equity crowdfunding sites have active secondary markets which enable you to trade your shareholdings. This provides liquidity, as you can sell your shares to other investors at any point. There are also some great deals to be had on secondary markets, where properties are trading at a discount to their latest valuation.
Each property is structured inside its own limited company or SPV, set up specifically to hold the property as an investment. Investors are actually buying shares in this SPV which is legally ring fenced and separate from any other SPV, giving you security of ownership even if the crowdfunding company were to disappear. The SPV, being a company, must pay corporation tax of 19% prior to distributing dividends to investors, so it’s not as tax efficient as a REIT.
Things to look out for, when choosing a crowdfunding platform, are whether the company has real property expertise, possesses the necessary FCA authorisations and approvals, holds its properties legally ring-fenced in SPVs, and has an active secondary trading market.
Perhaps the most well-known way to invest in property is buy-to-let: you own a property outright and become a landlord, collecting rent from your tenants. You manage the property to ensure that your yearly takings exceed the cost of owning the property, earning you a profit.
You can invest in the shares of companies who develop or invest in property themselves, or pool money with other investors via a property investment fund. An advantage of investing in listed companies or funds is that you can generally invest within your SIPP or ISA, therefore deferring or shielding tax.
Peer to peer property lending offer you the opportunity to lend your money to a property developer and earn interest on the loaned funds. Loans are typically short-term and return a relatively high rate of interest, but can be high-risk.
Capital at risk. The value of your investment can go down as well as up. The Financial Services Compensation Scheme (FSCS) protects the cash held in your Property Partner account, however, the investments that you make through Property Partner are not protected by the FSCS in the event that you do not receive back the amount that you have invested. Past performance is not a reliable indicator of future performance. Gross rent, dividends and capital growth may be lower than estimated. 5 yearly exit protection or exit on platform subject to price & demand. Property Partner does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. Customers are advised to obtain appropriate tax or investment advice where necessary. Please read Key Risks before investing.