Please note: this blog was published in January 2021 and its content is based on what was correct at the time of writing. As a result, some of the facts and opinions may no longer be current or relevant.
When the UK’s property freeze ended, as part of the first Covid-19 lockdown, many investors may have looked towards property as a way of diversifying their portfolio. But is now a good time to invest in the property? There are a lot of factors that may impact your decision here, from how you’re planning to invest through to where and why. To start with, let’s take a quick look at the different ways that you can invest in property.
How to invest in property?
There are many ways that you could invest in property, from purchasing a house, flat or commercial venue, this is often referred to as a ‘direct route’. You could be buying this property for your own use, or to let out to tenants. Direct investment like this gives you a good degree of control, but it can be expensive to get started.
Indirect routes could be investing in real-estate investment trusts (REITs) which may hold properties from one specific region (i.e. London) or one section of real estate (i.e. Office buildings). You could also invest in property companies and house builders, although your returns would be linked to those companies’ success rather than property prices.
If you’re interested in learning more about how to invest in property we have an entire article on it here: https://www.wealthify.com/blog/how-to-invest-in-property.
Is now the right time to invest in property?
Again, this depends on a multiple number of factors. Where you are in the country, why you are looking to invest in property, and how long you’re looking to hold that property for are all important here. If you’re considering investing in property for the long haul, then most of the current impacts are likely to be relatively short term – for example, the freeze in property sales caused the market to drop for four consecutive months, although demand for new mortgages has increased.Then, in July 2020, normal activity resumed and the government introduced a stamp duty holiday which saw house prices jump back up.
The thing with investing, even with assets like property, is that you can’t predict what’s going to happen. Prices go up and down on a regular basis, and are impacted by supply and demand, government policy, and much more. Development and renovation aside, investing in property is typically considered a long-term endeavour and therefore time in the market is more important than timing the market.
Data shows that from 1952, the UK property market has gone up, on average, 7.7% each year. However, that growth hasn’t been smooth. There were many quarters which experienced negative growth, and there were even longer periods, such as between April 1990 and October 1993 where house prices continuously fell.
But what about globally?
Having a range of different investments – a thing we call diversification – is a good plan, as it helps reduce the amount of risk you take. There are a few ways of doing this, one is by holding lots of different types of investments such as stocks, bonds, commodities like oil or precious metals, and even properties – these are called asset classes. And you can also diversify within a single asset class by looking at different sectors or locations, for example residential and commercial property or property in the UK and abroad.
Property prices around the world are all different. Think about it, even in the UK the price you’d pay in London is different to what you’d pay in Yorkshire, for example. The same is true of different countries, not just of price, but in rate of growth too. Considering property in Japan may be more expensive than Lithuania, but Lithuania could have greater growth potential. With Direct Investing, it could be hard to diversity your property globally, but with indirect options this is far simpler.
Investing in Property to Rent
If you’re planning on investing property as a buy to let – either commercially or residentially, then this could provide you with a regular income. This additional income, as well as benefitting from the price of your property increasing, appeals to many investors, but there are some drawbacks to becoming a landlord. For one, you’ll still be responsible for maintaining that property, paying any mortgage and taxes, insurance, finding tenants, and collecting rent. This can be a lot to take on, and you’ll need to ensure that your property is in a desirable location, which can cause the purchase price to be inflated.
The benefits, however, will depend on how much you can charge in rent. If you can cover your costs and make a profit then you may be able to save money to pay for any big expenses down the line – such as a new boiler or roof – or even use it as a deposit on your next investment property. There’s also the ability to increase your rental prices in line with inflation, meaning that this investment could potentially keep your investment profitable as costs rise.
How to indirectly invest in property
If you’re looking for a way to indirectly invest in property then you’ll be glad to know that it can be much easier, and cheaper, to get started. With robo-investors, like Wealthify, you can easily invest your money in a wide range of different investments, including property, without having to put forward a significant amount of money to get started.
In fact, you get to choose exactly how much you want to invest, pick an investment style that suits you, and then a team of experts will make all the hard decisions for you. Before you know it, you could have a fully diversified investment plan letting you benefit from investing in property, shares, bonds and more.
Please remember that past performance is not a reliable indicator of your future results.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.