Interest rate hikes are ramping up the cost of buy-to-let mortgages, leaving some private landlords with the prospect of actually losing money as soon as next year.
Despite this, there are still lots of opportunities out there to generate regular returns from property without the threat of increasing mortgage repayments or actually needing to own a property outright, with all the associated costs and hassles that can go along with this.
Is Property Investment Still Worth It?
Given everything that’s going on in the traditional buy-to-let sector, it’s leading many to ask whether property is still a good investment option.
The answer to that is a definite ‘yes’ – but there’s no doubt that things are a little different than they were a few years ago.
Property has historically provided a very stable and lucrative investment option over time, comparing very favourably with other investment types and having the advantage of typically delivering both a regular income and long-term capital appreciation.
That’s still very much the case – but rising interest rates and increasing legislation has certainly taken the shine off owning a property outright, leading many to consider alternative investment options.
In these volatile times of rising interest rate, higher tax bills and squeezed rental yields, which investments should be on your radar?
Buy-to-Let
First things first, let’s look at what has traditionally been the most popular way to invest in property in the UK – buying a property to rent out to tenants.
Buy-to-let has provided a very attractive investment avenue over the last few decades, with historic low interest rates and strong demand producing some very attractive rental yields. Rocketing house prices have ensured investors have benefitted from huge capital gains, leaving the performance of shares, bonds and savings in their wake.
Despite this, many would argue that buy-to-let no longer represents the near-unbeatable proposition it once was. Increasing tax and regulatory changes have squeezed landlord profits – and with rising interest rates now significantly pushing up the cost of buy-to-let mortgages, many investors are looking elsewhere.
Indeed, one of the main problems with buy-to-let in the current climate is the huge capital outlay required to purchase a property in the first place. Most investors will fund their purchase with a mortgage, typically on an interest-only basis – but with interest rates predicted to possibly reach as high as 4% next year, it’s natural that many are wary of borrowing in the current climate, especially when alternative avenues promise the opportunity of generating regular income without making such a significant upfront capital outlay.
All this is not to say that buy-to-let can’t work at all. Indeed, there are ways to ensure a quicker return, for example by seeking a property that can be bought at a significant discount. But many would argue it’s not the lucrative and hassle-free option it was previously.
Property Crowdfunding
Crowdfunding is one such option for those looking to invest with relatively little cash and, crucially, no borrowing.
In short, property crowdfunding works in much the same way as any other type of crowdfunding. Capital is raised from a group of investors, which is then used to purchase a property to rent out – or for lending money to a developer. In return, investors receive a share of any income and profit that is generated from the property.
Perhaps the biggest attraction of crowdfunding is that you don’t need loads of cash to get started – and no mortgage. In addition, it’s easy to diversify your portfolio and spread the risk across multiple properties, potentially enhancing long-term returns and providing some protection against changing market conditions.
What’s more, unlike a traditional buy-to-let, it’s a hassle-free investment since the management of the properties is taken care of. You won’t need to worry about mortgages or dealing with tenants, rent payments, repairs or general upkeep – it’s all managed on your behalf.
Property Portfolio Group Buys
Property Portfolio Buying Groups are another popular type of hands-off investment, offering the opportunity to earn a share of income without needing to make a property purchase.
When you invest in a Property Portfolio Buying Groups, you are investing in a company that invests in real estate, with the company typically owning a diverse portfolio of property assets which may be spread across different sectors such as residential, commercial and industrial property.
Whereas crowdfunding typically involves the purchase of a single property asset, money invested in a Property Portfolio Buying Groups is used to build a portfolio of properties, with income distributed to shareholders on a regular basis.
Acquiring shares in a Property Portfolio Buying Groups is simple and you can invest for around the same amount as it would cost to put a deposit on an average buy to let.
There are many advantages to a Property Portfolio Buying Groups not least the fact that you do not have to pay stamp duty or legal fees. There are no renovation fees, void periods to worry about or ongoing maintenance.
In these troubled times of rising interest rates, there’s also no need to worry about dealing with mortgages and their associated rising monthly cost eating into profit margins. .
The Best Property Investments in Times of Rising Interest Rates?
Considering the current concern over interest rates and the spiralling cost of living crisis, it’s certainly understandable that would-be investors are wary of borrowing with a mortgage.
Equally, many seasoned investors are turning to more hands-free property investment opportunities, like the Property Portfolio Buying Groups that offering a regular return while avoiding many of the increased costs and hassles associated with being a private landlord.
For more information on the different types of property investments available to you, please don’t hesitate to get in touch. Simply pop your details into our contact form and a member of the Sterling Woodrow team will get back to you.
Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.