Some friends of ours are currently looking for a new investment property and are finding the market very competitive.
They recently spotted a well-located bungalow that needed a little ‘modernisation’, to quote the estate agent’s parlance.
Offers had to be submitted as sealed bids and our friends dutifully guessed at a number about 10% over the asking price and submitted their bid.
With such a healthy mark-up, they were feeling reasonably confident they would win. No chance.
When the deadline passed, the estate agent revealed that there had been 23 offers and the highest one was over 20% above the asking price.
Our friends have experienced a similar pattern with the other properties they have been interested in.
Contrast that with the recent Royal Institute of Chartered Surveyors (RICS) report stating that property values in London continue to fall.
They also commented that property worth more than £1m was the most likely to see discounts of 10% or more on its asking price.
At the same time, the Halifax House Price Index has registered a 3.3% increase in prices for the three months to July, compared to a year ago. On a monthly basis, they were up 1.4%.
Another report shows house prices in large parts of Wales rising at over 10% annually, whilst Southwark in London has experienced an annual drop of 17.5%. Ouch!
So, what’s going on?
Well, it would appear that the market is getting a little choppy – especially in London – but the general consensus from both RICS and the Halifax is for prices to remain flat or rise slightly in the year ahead.
But – as you can see – with significant regional variations.
I think it’s fair to say that – even with all the recent tax changes – property is still a hugely popular investment for us Brits.
It’s very reassuring to actually own a physical building and collect monthly rent as an income stream.
But, with all the associated hassle of being a landlord and the current uncertainty over prices – is it really worth it?
I think it is. As part of a diversified income portfolio, I believe it’s an excellent addition to dividend shares, peer-to-peer loans, options and investment trusts.
But – and for me this is crucial – I want some expert guidance in selecting the properties and I don’t want any of the hassle of ownership.
My days of unblocking a tenant’s toilet at midnight are long gone.
Property investment: An easier way…
Property is a great way to add diversity to an income generating portfolio. If the stock market takes a plunge, your property investments should hold up just fine.
Crowdfunding platforms use a straightforward model for people to invest in a portfolio of expertly selected properties.
Open an account, make a deposit and then decide how much you wish to allocate to a new or existing property purchase.
Your investment buys shares – along with the other investors – in a specially created limited company that buys the property.
As the tenants pay their rent, it is distributed to the shareholders as dividends.
Or, how about shares in a new Purpose-Built Student Accommodation (PBSA) block?
This is one of the strongest-performing property sectors in the UK, recently delivering a 10.2% total return for the academic year that ended in August 2016.
These investments have proved very popular in the past because of their supply of reliable tenants and the outsized dividend yields on offer.
An alternative to crowdfunding platforms as a way to invest in property is a Real Estate Investment Trust (REIT).
REITs were introduced in the UK in 2007 and since then most of the UK’s largest property investment companies have converted to them.
In order to qualify as a REIT in the UK, companies have to meet certain requirements.
The most important of which are that at least 75% of their profits must come from property rental and they must pay out 90% of their rental profit to investors.
In exchange for operating within these rules – and to encourage investment in UK real estate – REITs are not required to pay corporation or capital gains tax on their property investments.
Rather than investing in any property that catches their eye, most REITs specialise to some extent.
Through REITs you can invest in many different types of property, including residential accommodation, shopping centres, office buildings, warehouses, hotels and student accommodation.
Or you can focus your investments on the property market of a particular region you have confidence in.
If you think that London is going to bounce back from its current slump, then there is a fund for that.
Or, if you believe that the regional capitals of Birmingham, Leeds and Manchester are a safer bet, they have a fund for that.
The best bit is that it’s very tax efficient, especially when used within an ISA or SIPP.