Property investments can seem complex at first. What’s more, there is a common misconception that you need to own a home to take advantage of the UK property market. However, there are ways to invest in property in the UK with little money. With the internet and apps already having broken down the way investment is done in various markets and assets, it makes sense that property investing should start to become more flexible, too.
Even if you don’t have enough capital to buy a home or property outright that doesn’t mean you’re cut out of the market.
How you can start developing and investing in properties without having to actually leap onto the ladder?
Property investment funds
When people think of property investment, they usually think of residential property and it’s easy to get caught up in the image of old bricks and mortar. In some cases, people may even get property investment and property development confused.
If you are wondering how to invest in property in the UK with little money, a clear way to invest in properties without having to hold any kind of ownership, therefore, is to look at commercial buildings. In the UK, you can easily invest in property funds that give you a portion of the cut from commercial or office blocks. For example, you could choose to invest in a property investment fund that offers firm shares, rather than in actual buildings.
Property investment funds allow you to make money through staking interest in how a physical building will do over time. Most funds are likely to revolve around commercial properties, which does mean that there is also an element of risk.
For example, what happens if a property or storefront stays unoccupied? What if the high street continues to decline as a result of growing online trade?
Some people may not see property investment funds as a safe enough way to get behind commercial property. In that case, it may be more prudent to look at options where you actively invest in companies, rather than their high street shells.
Alternatively, if you are really serious about property investment, you could look at REITs.
What are REITs?
A REIT is a Real Estate Investment Trust. It’s a system that is in active play in the UK and is readily available for budding investors to take advantage of.
Essentially, a REIT is more than just a property investment scheme – it’s a company. You’ll find that REITs have full stock market listings, which means that, to invest, you need to buy shares. What sets REITs apart from the pack is the fact that at least 75% of its company assets should be up for rent.
What’s more, at least 75% of its profits, too, need to arise through rental income. If you can see that this is the case, you can then be sure that you’re dealing with a firm, or brand, that purely dabbles in the property market, and you’re one step closer to being a property investor.
What do you stand to get by investing in a REIT?
Before you leap into REIT investing feet-first, it’s worth considering what you’ll actually get by putting money into their shares.
Dividends, as mentioned, need to be on offer from a REIT as standard. This means, on the whole, you can expect payments on a regular basis. Of course, the number of shares you own, and the amount you choose to invest, will greatly impact how much you get back.
Of course, while dividends are regular through REIT investment, they are always going to vary. The volatility of the housing and rental markets means that there’s never a guarantee as to how much a REIT will bring in over the year.
Factors that can affect REIT income, particularly dividends, include where they rent properties from, to whom, and how much for. Unfortunately, this is something you’re going to have zero sway over so some investors see a bit of a leap of faith.
The other way you’ll make money through REITs is, of course, via capital gains. As with any shares, it is possible to sell them on for a profit.
As shareholders know, capital gains can be tricky to bank on. Unless you choose a REIT that’s really going places, or if you just so happen to catch the market at the right time, the chances of you making any good money from this source alone can be quite slim. However, there’s nothing to say you won’t make a tidy profit under the right conditions.
However, that’s ultimately the last resort for REIT investors, because when you sell your shares, you’re giving up your stakes. You’ll lose the right to keep earning those yearly dividends, and you’ll also have to pay tax on your sale.
How to invest in a REIT?
Investing in REITs is as simple as searching the markets and then simply investing in shares belonging to companies who make money from letting property. As mentioned, there are more than a few stipulations as to what makes a company a REIT, meaning it’s worth filtering out the parameters.
Beyond this, you can also invest in REITs through ETFs, or Exchange Traded Funds. These work similarly to shares however, you’re not investing in one REIT alone; You’re potentially investing in a basket of several REITs. This might be a good opportunity for you to diversify your portfolio, or to at least protect your interests if you’re just starting out.
You can use a variety of trading platforms to search for Real Estate Investment Trusts or REITs. There are a number of commission-free stock trading apps that actively support investment in shares for property firms. It’s worth taking a look at various online programs and suites which you can manage from anywhere, such as your home and on the go. If you’re already deep into the stock market and buying shares, you are already one step ahead of most people.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.