How to Invest in Property without a Large Deposit

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Wherever you are in the world, investing in property, or Real Estate as it is called in the United States, remains one of the most prudent investments an individual can make. Once you have invested in property, you have the opportunity to benefit from capital appreciation (the value of the property going up over time) and rental income.

In the United Kingdom the total value of the UK’s housing stock hit £7.39 trillion* in 2019, a new record high. The traditional way into property ownership is to save a large deposit and secure a residential mortgage. In terms of a deposit, ten percent of the purchase price is a typical requirement by mortgage lenders. In London, this often amounts to tens of thousands of pounds. What if you haven’t got a large deposit? Does this mean that you will not be able to invest in property?  No, it does not. Keep reading to discover alternative ways to invest in property.

Property Crowdfunding

As the name suggests, property crowdfunding is when many individual investors come together via an online investment platform to purchase a property together. There may be several hundred investors for one property. The amount of money required is significantly lower than if you were trying to purchase the property yourself. A few thousand or in some cases a few hundred will secure your stake in a property and you must commit to specific time period, this could be five years. After that time you are free to exit the investment and liquidate your profits or reinvest into another property.

In the interests of balance I must point out that when you invest in a property via a crowdfunding site like Property Mouse or Property Partner you have little control over your investment once you have committed to it. Also, the reviews of both websites are mixed so my advice would be to do your due diligence before investing. If you live outside of the United Kingdom, there may be similar websites in your country.

Joint Venture Partnership

A Joint Venture partnership in the property market is when two individuals formally agree to work together and create an agreement clarifying each other’s role in the partnership. A person who finds below market value properties and presents them to a property investor could be covered by this sort of agreement. In that scenario the person who finds the properties (property sourcer) requires no funds but will be compensated for each successful property deal they present to the investor. Please note, that sourcing below market value properties for property investors is very competitive work. Be prepared to devote considerable time to it if this is your planned route to property market.

Property investment Funds REIT

Investing in property via a Real Estate Investment Trust (REIT) may be the most comfortable way of investing in property for many who lack a large deposit. A REIT is property investment company listed on the stock exchange. The company manages commercial properties, residential properties or both types for its shareholders. When you invest, you buy shares in the REIT. If the compnay does well you will receive a share of the profits. Please note, the value of your investment can go down as well as up.

These are just three options for investing in property without a large deposit, if you are serious please remember to do your due diligence. Also consider property bonds  and property unit trusts.

Next Steps

Are you interested in investing in property? ethical investments? Will your next investment be property related? Let me know in the comments section below. Also, get in touch if you would like my help. My email address is mike@learnmoney.io

 

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My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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*Source – https://www.savills.co.uk/insight-and-opinion/savills-news/294601/uk-housing-stock-now-worth-a-record

Investments: Why Saving is Not Enough

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In a few of my blog posts on this website I have reminded you of the importance of saving 20% of your income. Saving is vitally important to give yourself a platform to build towards financial freedom but saving on its own will not be enough. Let me explain, the current rates of interest offered by most financial institutions are relatively low, in most cases they are below 1.5%. This is lower than the current rate of inflation.

Saving into an account that offers this kind of interest rate will not magically produce a large lump sum or provide a regular passive income that will enable you to become financially free. Sadly even many pension funds built up during the working lives of adults in the UK will not deliver the levels of capital growth necessary. In addition to saving you will need to make investments; investments offer the chance for your money to grow significantly in the medium to long term. It is worth stating that investments usually have more risk attached to them;  there are usually greater risks and potentially greater rewards.

Investments

Below I have listed several types of investment that could potentially move you closer to financial freedom. This is not an exhaustive list so I encourage you to do your own research to discover the investment approaches that are most appropriate for you.

Property

Property is my favourite type of investment here in the UK. The purchase of  a Buy to Let property was until recently a very popular investment allowing investors to benefit from capital appreciation and rental yield. Changes in the tax relief that landlords can claim , introduced to dampen the buy to let market and create opportunities for first time buyers, are having their intended effect. It is now not as easy to set up profitable buy to lets.

For investors with less available capital, property crowdfunding is a way to join other investors and pool resources to invest in properties. Property Partner is an example of a crowdfunding property company that enables smaller investors to participate in property investment without having to buy a property outright. The returns from property crowdfunding are good and it is open to investors of all levels.

Stocks and Shares

By purchasing Shares, it is possible to invest directly in the performance of one particular company. Investors who hold shares in a number of companies refer to them as Stocks. Imagine if you had invested in Amazon or Apple in the early years, the return on your investment that you would have received would have been phenomenal. Investors can benefit from the increased stock price and dividends that the company might declare and distribute.

Unit Trusts and OEICs

Investing in one particular stock can work out well if the company does well but you could also lose all of your money if the company folds. A less risky approach is to use an investment fund to invest in a range of companies. The two most popular types of investment funds are Unit Trusts and OEICs. With a Unit Trust, you purchase units of a fund that is made up of the investments of many investors. This could be a tracker fund or an actively managed fund; a fund manager makes the investment decisions for the fund.

An OEIC is very similar to a Unit Trust except that the fund is run as a company and you purchase shares instead of units. Returns are paid through regular distributions, they could be quarterly or monthly dependent on what the fund guarantees.

Exchange Traded Funds (ETFs)

Exchange Traded Funds( ETFs ) are a relatively new investment product and  are similar to Unit Trusts and OEICs in that they are open ended but the difference is that they are are listed on a Stock Exchange. They also include a wider variety of assets that Unit Trusts and OEICs.

Cryptocurrencies

Cryptocurrencies are easily the most volatile of all investments that I have included on this list. It is possible to both make or lose a fortune with cryptocurrency investments in the space of a few hours or days. Many professional investors including Warren Buffet do not consider cryptocurrencies a suitable investment and believe them to be little more than a gamble. However, blockchain technology which provides the platform for cryptocurrencies via its distributed ledger system, is here to stay. To read more about cryptocurrencies, read this post, Has the Cryptocurrency Bubble Burst?

If you have the stomach for it, and can afford to lose what you invest cryptocurrencies, most notably Bitcoin could provide the significant capital growth you will need for financial freedom. Despite what some professional investors thinks cryptocurrencies have made many new billionaires and millionaires in a short space of time.

 What Should you Do?

Research the investments or investment approaches that appeal to you. Have you already made some investments? What type are they? Please let me know in the comments section below.

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My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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Have you Saved Enough into Your Pension?

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Have you saved enough into your pension? For a large proportion of the United Kingdom population the answer is no. Most people are not saving enough for their retirement.  Does your vision of retirement include freedom to travel and time to enjoy a comfortable standard of living? If we all to have the retirement that we aspire to one day, we will need to make sure that we are on track to achieve it.  It is time to get serious and work out how much that will cost.

Pensions: Why Many People Are Failing

There are a lot of assumptions built into pension calculations, assumptions that are not true for many people. For example, the assumption that you will work 40 years of continuous employment with your salary continually increasing by X% and you maintaining your pension contributions at 12% of your salary for 40 years. Some of the realities of life such as redundancies, women taking time out to raise a family, individuals starting businesses, part time work, time out for studying and credit credit or student loan debts don’t exist in this Continuous Pension Saving Utopia.

I think when people realise that they are not on track to hit their pension goal, they give up and hope someone other than themselves will solve the problem. Let me be more specific, if you would like to live on a retired income of £25,000 you will need to have a pension pot of £500,000. That is assuming that you use your pension pot to purchase an annuity giving you the annual income of £25,000.  Try this pension calculator to work out how  much you would need at other income levels. As you can appreciate, £500,000 is a large amount especially when it’s considered that the average pension pot in the UK is around £50,000. 

What Should you do Now?

Pension Pot 

Work out the total pension pot you currently have, if you have had several jobs during your career  you may need to do a little detective work to track down all of your workplace pensions.  This article will help you find your pensions. 

Up Your Contributions

Re-evaluate your household budget, can you afford to increase your contributions? If you are in a workplace pension then you should maximise the contributions that you make because these will be matched by your employer. If you are self employed, you should also increase your contributions.

Develop a Plan B

It may be that increasing your pension contributions alone will not be enough for you create a big enough pension pot for retirement. If that is the case, you should develop a Plan B.

Property is a great way to supplement your pension savings, you could downsize your main residence and use the profit for your retirement. Alternatively, you could rent out a spare room and earn extra income that way. There are other ways too, they include equity release and property investing. You can read more about these ways via this link. 

If you own a business, this could become your Plan B. Depending on the nature of your business, you may be able to sell it and contribute money to your pension savings after the sale.

Don’t Lose Heart

The fact that you are reading an article like this is a positive in itself. You still have time to improve your level of preparedness for retirement and there are a number of ways you can do so.

Are you on track with your pension savings? If not, what are you going to do about it? Let me know in the comments section below.

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My aim with each blog post is to help you move to a better financial future. I believe that there is not enough financial education in the national curriculum and I intend to share anything helpful that I have learned along the way. I am by no means a financial expert. None of the information on this website constitutes financial advice and is provided as general information only.  This is my personal finance blog; my marketing blog is over here and I have been blogging there since 2010. I hope you have found this information useful. Thank you for reading.

Best regards,

Mike

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