What are the Alternatives to Buy-to-Let?
What are the Alternatives to Buy-to-Let?
Buy to let investment is certainly less popular now than it was a few years ago, and many people who are keen to pursue property investment opportunities are looking for different ways to invest. So, what are your options? There are several buy to let alternatives you may want to consider.
First, let’s take a closer look at the problem with buy to let.
The Problem with Buy-to-Let
Buy to let became popular in the UK in the 1990s following the introduction of buy to let mortgages in 1996. Previously, buy to let investments were only for the wealthy, and the arrival of these mortgages made it a lot easier to invest. But changes to taxes have made it less appealing. In 2015, tax relief on mortgage finance costs was restricted to the basic rate, the 10% wear and tear allowance was removed, and a 3% stamp duty surcharge was introduced along with other changes. And, as of 2020, buy to let investors won’t be able to offset any mortgage interest against their profits. In addition, buy to let is not a hands-free investment because it involves looking after the property, finding tenants and making repairs – all of which can be a hassle. As such, many investors are looking for better options.
One of the obvious alternatives to buy to let is to avoid property entirely by investing in bonds, funds and savings accounts. However, there is no doubt that property remains an appealing and highly lucrative investment.
So, if you are certain you want to invest in property, what are the alternatives to buy to let?
Peer to Peer Lending
Peer to peer lending has much to offer as a buy to let alternative.
When you invest in secured peer to peer lending, it has many advantages over buy to let. With short-term bridging loans made to homebuyers, it’s easy to get started and the entry point for investors is low – you can start with as little as £1,000. Loans are secured by a legal charge against the property, while still providing reliable returns, although it should be noted that these returns are not guaranteed and (because property prices can go down as well as up) your capital is at risk. It’s also an excellent way to spread your risk across a diverse portfolio of loans.
Innovative Finance ISA
The Innovative Finance ISA is a peer to peer lending ISA. It allows you to invest in peer to peer loans through an ISA with a fixed rate and tax-free returns. With this, you can invest up to £20,000 over a minimum three-year term, making it a simple way to diversify your investment and get tax-free returns, while saving time and hassle.
There are two options for property development. The first is to buy a property yourself, renovate it and sell it for a profit. However, this is very risky, a lot of hassle and can end up being very expensive. Alternatively, you can invest in peer to peer development loans. This property development investment option has good earning potential and your investment is also secured by legal charges against the property and land (again, noting that property prices can go down as well as up, so your capital is at risk). At The House Crowd, our property development finance offering uses the peer to peer model to enable investors to earn high returns from developments with planning permission already in place – so that’s one less thing to think about. What’s more, none of our development projects receive bank financing.
Flipping properties is the practice of buying a property and selling it for a profit. This can be a good way to make a quick profit in as little as a year or two, but it depends on your knowledge and experience, price movements, and the mercy of the property market. Property prices could fall, and you are exposed directly to the risk.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) involve investing in property investment companies that can be traded on the stock exchange. These don’t pay corporation tax or capital gains tax, and 90% of rental income is paid out as dividends. They usually have long-term lease agreements with tenants, leading to more reliable income. But make sure you are aware of the level of debt. Property prices can change quickly, and REITs with high debt level can get into trouble.
Choose a Buy-to-Let Alternative
Traditional buy to let is less attractive than ever. Many investors still want to invest in property, but buy to let doesn’t appeal to them. So why not consider one or more of the alternatives to buy to let mentioned above?
At The House Crowd, we provide a number of excellent alternatives that present high earning potential, providing you with a great way to invest in property. Register for an account or contact one of our friendly team members today to find out more.
Remember, your capital is at risk and returns may vary. Please read our Important Information page and Risk Warning before investing.