The team at UK’s Sourced Capital notes that one of the “best” reasons for investing in property is the “potential” financial returns.
However, what if you were not able to commit to “hands-on” investments? Sourced Capital has shared some of the alternative property investments.
With the average yield for buy-to-let at about 6%, you may be able to earn significantly more with your funds than to have them sitting in a banking account or a building society (where they are earning only around 1 or 2% at current rates).
As mentioned in a blog post, if you invest in a HMO “a few years down the line and it’s likely you will have an even higher yield, possibly in double figures.” However, you’ll have to “do quite a bit more work for your buck, but many property investors feel the returns are more than worth it.”
In addition to simply the ongoing rental income (which you can use as cash flow), an additional benefit is “the potential for capital growth,” the Sourced Capital team noted. To the extent it’s not uncommon for a property “to double in value within a decade or two.” In 2021, for example, the average property “grew by around £20,000 (or 8.2%).” That was according to figures by the Halifax, and which “brought the cost of the average home in England to £272,992.”
Sourced Capital also mentioned that property prices can “”go down as well as up, of course, dependent upon market conditions.” But with demand for housing far outstripping supply right now (and which is looking to be the case for at least the next decade), “the chances of this happening should be reduced.”
As mentioned in the update, property investment “doesn’t have to be about buy-to-let and rental income though.” Another popular or widely-used strategy is “to buy a run-down property and refurbish it, to then sell on.”
It’s possible “to make a significant profit within a relatively short amount of time.” This very much “depends on the skills of those involved though, as well as the ability to find the right property in the first place.”
As noted by Sourced Capital, investing in real estate investment trusts (REIT) “is far more hands-off than those already mentioned.” This is a property investment company “listed on the stock exchange.” You can “buy shares in the company’s pre-selected property portfolios.” In this way investors are “pooling their funds to invest in buy to let or property to sell. Profits made are then shared with investors, based on the size of their ongoing investment.” This type of investment “can be very tax efficient, compared to other forms of investment.”
As mentioned in the blog post, another form of property investing, and one which “is a clear alternative to either rentals, refurbs, or REITs – is peer-to-peer lending.”
As explained in the update, peer-to-peer lending is “a way for people to lend money to individuals or businesses.” You – as the lender – “receive the projected interest along with your capital, when the loan is repaid.”
This type of platform “allows investors to choose their own properties (or at least, the properties they would like to invest in).” In this sense it “gives the investor far more independence that a REIT offers.”
According to Sourced Capital, the benefits of P2P lending are:
- Offers much higher returns than a high street bank or a building society.
- Offers a range of different providers.
- Minimum loan amounts at a level which enable those interested in property investment to partake with little capital.
- Being online, a peer-to-peer lending platform is easy to access, meaning investors can check their projects and profits at any time during the day or night.
- Investors are able to diversify their risk across a range of investments / providers.
But a disadvantage of peer-to-peer lending is that “your capital is at risk and this type of platform isn’t covered by the Financial Services Compensation Scheme.”
As noted by Sourced Capital:
“We have our own peer-to-peer platform at Sourced, where investors can get started with a minimum investment of just £1,000. Our targeted return on investment is up to 12% per annum, which is made up of the standard rate of 10% per annum, with an additional 2% with a pledge of over £20,000.”
The firm added:
“70% is the maximum loan to gross development value (LTGDV) we offer to our borrowers, and we provide first legal charge security against every property, in addition to a personal guarantee from the borrower. As an investor, you will receive both capital and interest, upon satisfactory repayment.”
They also noted:
“It’s possible to switch any existing ISA account you may have to our Sourced Capital Innovative Finance ISA (IFISA), at no charge.”
The company further noted that “similar to the IFISA, investors can benefit from tax free returns by using either their SIPP or SSAS pension funds.” You may “contact either your pensions scheme administrator or Sourced Capital for further details.”
Currently, the Sourced Group “have property in development, across the UK, totaling more than £270m, including flagship developments in Manchester with more than 500 apartments.”
They also have over 150 offices “with individuals sourcing, investing, and managing property portfolios the length and breadth of the British Isles.”
You may begin your property investing journey “by creating an account with Sourced Capital.”