Beyond buy to let: other ways to invest in property
While buy to let now offers far less lucrative returns than it did, there are other ways to invest in property, and you don't need to be a landlord.
A series of tax and rule changes has meant investing in buy-to-let homes isn't as lucrative as it once was. But there are other ways you can make money from property.
Changes to buy to let
The first big change came in the Summer Budget in July when Chancellor George Osborne announced that tax relief on buy-to-let interest payments will be restricted to the 20% basic rate tax, even if the landlord is a higher or additional rate taxpayer.
Next, the government announced that UK-wide Right To Rent checks will be rolled out nationally from February 1 2016. Landlords who let property to illegal immigrants could be fined up to £3,000.
Then in the Autumn Statement Osborne announced a hike in stamp duty rates for landlords and investors – massively increasing the cost of expanding property portfolios.
However, 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?
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Holiday lets
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.
[Related story: How to buy and run a successful holiday home let]
Crowdfunding
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.
The minimum investment with Property Partner is just £50 and the site claims investors can earn returns up to 13% a year.
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.
Social housing
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.
Peer-to-peer lending
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 rate of 4.4%, fixed for three years.
The main downside is risk – peer-to-peer lending is not covered by the Financial Services Compensation Scheme.
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