Would you like to invest in commercial property but don’t have much savings? From crowdfunding to property funds to peer-to-peer loans, there are a number of options.
One of the most straightforward routes to invest in commercial property is through peer-to-peer (P2P) lending: investors lend money to borrowers, with the cash secured against commercial and residential properties or new-build developments.
There are 11 P2P safe property lending platforms to consider, including big names such as Proplend and Landbay – though most focus on bridging and development loans according to research by 4thWay, a P2P comparison site.
The site reports that you can invest as little as £25 with Funding Secure, which lends money against land values to develop property, while six platforms offer minimum loans of £500 or less. This allows lenders to diversify, spreading the risk across several providers.
Wealthier investors can also consider P2P property loan platforms if they want someone else to do the work for them. For instance Wealth60 offers returns of up to 6% with 60 days’ notice with a minimum deposit of £10,000.
Picking properties that offer low loan to values (LTVs) will mean your loan will be more secure if the UK property market were to suffer a downturn. Alternatively, you could invest in properties that are more valuable than the loans themselves, making it easier to recover bad debt.
It’s a good idea for lenders in property P2P loans to spread their money across lots of loans and P2P lending platforms. You could lower risks further by weighting lending towards loans to commercial landlords or residential landlords. However, bear in mind that borrowers may pick P2P because they have been refused finance from banks and building societies.
Alternatively would be investors could choose to be a silent observer and understand the process first before investing. For example, you could consider joining a P2P platform, but not put any money in and just watch how it works. You could then just start with a small amount of money, say £500, and see how it goes.
This differs from P2P in that you can get a stake in property and a return on the rental income and capital growth, rather than investing in a loan secured against a property.
It is a niche way of raising money but can garner public support which could be useful in bringing attention to your brand. For example, take the case of De Bees in Winsford, a Cheshire music venue which launched a crowdfunding campaign to raise £150,000 to transform it into a community hub. At the time of writing (May 2019) the campaign had already raised £6,500 and was attracting a lot of public interest.
For this method you can invest on websites such as Property Partner, The House Crowd, CrowdLords, Property Moose, and UOWN. Crowdfunding offers a great way for novice investors to dip their toe in the property sector – for instance, you can invest from as little as £1 with UOWN.
However as with P2P, it’s worth noting that these investments are not protected by the Financial Services Compensation Scheme.
Innovative Finance Isas
Innovative Finance Isas (IF Isas) allows investors in this sector to benefit from tax-free capital gains and tax-free interest on their annual Isa allowance of up to £20,000 a year. These sorts of isas are available from P2P or crowdfunding platforms including Landbay, Landlordinvest, Property Crowd, CapitalRise, DowningCrowd, HNW Lending, Kufflink, and Relendex.
For more information, visit Innovativefinanceisa.org.uk.
Another route to investing in commercial property is property funds. The benefit is you can spread your risk across several properties with small amounts of money.
You could explore unit trusts or open-ended investment companies (OEIC), which are a popular form of investment. With a unit trust a fund manager buys bonds or shares in companies on the stock market on behalf of the fund. The fund is divided into units, and this is what you’ll buy. The fund manager creates units for new investors and withdraws units for those selling out of the fund. The creation of units can be unlimited, hence why the fund is ‘open-ended.’
The price of each unit depends on the net asset value (NAV) of the fund’s underlying investments and is priced once per day. This means that the value of the units you buy directly reflects the underlying value of the investment
An OEIC also enables investors to invest in commercial markets through a managed fund operated by a professional fund manager, however the fun is actually run as a company.
It therefore creates and cancels shares rather than units when investors come in and go out of the fund, but they still directly reflect the value of the assets that your fund manager has invested in. The downside is the value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested back.
You could also try Real Estate Investment Trust (REIT), where investors pool their money to invest in property. These benefit from being closed-ended, which means fund managers do not have to sell the investments during tough times, and this is particularly suitable for investing in less liquid asset classes such as property.”
Good-quality university towns, such as Manchester, Leeds or Glasgow are good locations to invest in for first time investors.
However, property funds and P2P/crowdfunding are not without risk – if the housing market were to crash, it would affect the underlying capital of properties in investors’ portfolios. There are also fees to consider – for example, The PRS REIT’s annual management charge is 1.44%.
Taking In Lodgers
If you are property rich but cash poor, you could treat your home as an investment vehicle and take in a lodger.
Under the government’s Rent a Room Scheme, you can earn up to a £7,500 a year tax-free from letting out fully furnished accommodation in your home.
For more information on how it works, visit Gov.uk/rent-room-in-your-home.