Photo by Tom Podmore on Unsplash
In the UK, we are often reminded that property can be one of the most reliable investments out there. After all, UK house prices rose by an astonishing 207% over the past two decades, a rate of return that far outstrips most other types of assets. If someone bought a home in London at the turn of Millenium, they are almost guaranteed to have made a substantial return if they were to sell today.
How many other assets can you say that about? However, one thing that property investment idealists often forget to mention is the incredibly high startup costs associated with the practice.
Let’s say you wanted to buy a flat in London to use as an investment vehicle. Do you have a spare £662,000 lying around, which is the current average ask price for such a property? This begs the question of whether it is possible to “break into” property investing when you cannot afford to scale the significant barriers to entry. Let’s have a look at some of the low-cost options out there.
Make your home an investment
If you already own your home, then this is one of the logical places to start. You can earn money from your home, without having to invest significant amounts of capital. You could do something as simple as letting out your spare room on a site such as Airbnb. You could use the equity you have built in your existing home to finance the purchase of a new property. If you’re a homeowner, you are already at an advantage.
Investing in REITs
Alternatively, some investors choose to invest in the housing market as a whole, rather than investing in an individual piece of property. The most popular route for doing this is through a real estate investment trust or a REIT. Investing in REITs allows you to purchase “shares” in property funds, without buying any real estate yourself. You could invest in a commercial REIT, which consists of retail properties such as shops and supermarkets, or you could invest in rental REITs, where you can earn dividend income from rent payments. This is probably the lowest-cost way for retail investors to get involved in the housing market. However, it’s worth noting that because they are on the stock exchange, the share price value can go down as well as up.
Partnering up
If you do not have the funds to buy an investment property on your own, you could team up with others to do so. Pooling your resources with someone else allows you to spread the risk of your investment, although you will also need to share the profits that come from rents or the resale of a property. You can team up with a friend, or you can seek a professional real estate investing team and contribute your share of the purchase price there.
Lots and land
One of the cheapest ways to own property is to purchase empty lots and land. Although land in the UK is much more expensive than in most other countries, it is still cheaper than buying a completed house outright. Buying land and then building a house on top of it is likely to be cheaper still than buying a turnkey property. However, it is important to remember that you will have to deal with a lot of complicated hassles, such as permits and the logistical challenges of developing raw land. However, for savvy and talented developers, this option can be a good way to get your foot on the ladder, so to speak.
Investing in property is not always easy, but it doesn’t have to break the bank either. These are just some of the ways that people can invest in property without having to fork out vast sums to buy a a finished home.
