What is an Investment Property?
What is an Investment Property
What is an investment property? When we think about an investment property, many different scenarios may spring to mind. A term with multiple meanings, investment property can be something quite subjective. Secured peer to peer bridging loans, property development, buy to let, it’s all relative! When defining an answer to the question of ‘what an investment property?’ we can understand it (in more general terms) as a broader point of reference for properties utilised for the purposes of investment.
The very term investment property is synonymous with applying more value to a property. An investment property is often used as a means to an end- the end, in this case, being to make a profit. Investment properties can be aquired on both a short-term and long-term basis, depending on their particular use. The ways in which a profit can be made from investment properties is far ranging. We’ll run through a few quick examples. So, answering the question “What is an investment property?” isn’t all that straightforward.
Let’s start by looking at a couple of the more traditional property investment options.
This is sometimes known as ‘flipping’. A buyer may renovate or ‘do up’ a property in the hopes of selling it on to an interested buyer. Generally speaking, there are two main reasons why people may ‘flip’ a property:
1) People flip properties that are appreciating in value very quickly. This could be because of the properties location or any other number of extenuating factors. They then sell the property in a bid to make a profit.
2) Sometimes a buyer will flip a property as it will add extra value to the property and making it attractive to potential buyer or tenants.
Buy to Let
Another method of investment to consider when thinking about ”what is an investment property?’ is buy to let. Many think that buy to let is dead. Maybe in a traditional sense, yes, but to many, crowdfunding platforms have opened the door (quite literally) to property investment; it’s now more inclusive for everyone. By investing in property as a collective and owning part equity, people can now share the risk of the investment and reap the profits from dividends paid out by the HMO. The aim is to earn money from the rent and pay back your mortgage (if you have one). Once you have paid back your mortgage, you can earn a steady income from the rent. There is also a good chance your property will increase in value, depending on its location and the general health of the property market, so you may want to sell it at a later date.
The decline of traditional buy to let can in part be attributed to increased stamp duty and taxes imposed by the government. It has no longer become a feasible means of making a profit, never mind a living! But as we are often reminded by the annals of history- where there is a will, there is a way.
The Downfall of Traditional Property Investment
Buy-to-let and flipping are two of the more traditional ways to invest in property, but they have a few disadvantages that make them unappealing to the investors of today. Buy-to-let involves a lot of time and money on your part. There is the hassle of dealing with tenants and maintenance issues, for example- sometimes on a daily basis! It’s also less attractive due to a heftier tax burden introduced by the government in recent years. One of the problems with flipping properties is that it can be risky. If the property market slows down, house prices can fall, and you can lose a lot of money on your investment. It’s also a very time-consuming practice.
As such, many investors are looking at alternative investment opportunities.
Alternative Property Investment
Peer to peer lending has opened up the door to investment opportunities that may not have been available a few years ago. You can now invest in property development loans – something that until recently would have been near impossible for most. Previously, property development was the reserve of the banks, and not something immediately accessible to the average investor. As with many other things, the advent of property crowdfunding introduced new and exciting ways for people to get involved with property.
Peer to peer property development is one method of investment that allows individuals to get directly involved with the construction or redevelopment of a property from start to finish. Through peer to peer property development, individuals invest their money to cover the build and construction costs of a project. Through The House Crowd’s unique peer to peer property development model, our members invest their capital into projects throughout its various phases of construction. Upon the eventual completion of the project, investors earn their capital and interest depending on the number of sales that have been completed. The properties themselves are leveraged as the security of the investment and investors are given a 1st legal charge should anything go wrong. As always though, with any investment- even if they are secured- there is an element of risk that should be take into account before investing.
Your Investment Options at The House Crowd
When considering the question ‘what is an investment property?’, it could in truth be one of many things. A term that can be universally applied to numerous investment types, an investment property is something that should be determined by the context of the investment and intent of the buyer/investor.
We’ve looked at some of the more traditional ways to buy into an investment property, alongside some of the alternative options that have become available in recent years. Consider all your options carefully, and then decide which type of property investment is right for you.
Here at The House Crowd, we specialise in peer to peer lending and crowdfunded property development investment opportunities than can earn you returns of 9.2% per annum (based on the average returns on our peer to peer loans between 2015 and 2018).
Alternatively, you could invest in a peer to peer lending ISA, also known as an Innovative Finance ISA. This can be an excellent way to diversify your investment across multiple secured peer to peer loans. It is important, however to bear in mind that all investments come with an element of risk, even our automated investment products.
It is important to bear in mind that with any kind of investment (even property) that risk is an inherent factor of the process. Your capital is always and risk and your returns may vary. Before making any investment, you should first make sure that it fits your own individual criteria. To find out more read our risk warning and visit our important information page.