So you want to invest in property but you also want to save up your mortgage deposit for your first home. It's safe to say you don't have the mortgage deposit required for any Buy to let investment at this time but the thirst to get your hands on a share of British brick and mortar before prices rise even further.
A nice way to invest your savings in a bid to boost them and add towards your mortgage deposit is by investing in property. But how do you invest in property with little money?
There are several models around that allow you access to the buy to let market and property investments for a fraction of the cost and even access to rental yields.Some of these are protected by the financial services compensation scheme and others aren't. You must always conduct your own research before investing in any platform.
Access to property investments could be through buying shares in property through property partner where you get access to rental yields or this could be loaning funds to property developers through Landbay or you can simply invest in a property ISA through Bricklane.
This kind of ISAs can be stocks and shares ISA or innovative ISAs. Your ISA allowance limits still apply.So be sure to check before you invest.
We will talk about all 3 solutions below.
First, what are ISAs?
An ISA(an individual savings account) should be your first point of call when saving.
ISAs are tax-free and hence any interest you earn on an ISA is tax-free. This makes ISAs much competitive in comparison to the interest earned on normal savings accounts.
Beyond standard cash ISAs, there are 3 more ISAs that can earn you even more. Fixed rate ISAs which lock in your cash in exchange for a better rate. Regular saving ISAs that give you a better rate for people who pay in every month and stocks and shares ISA which have the potential to give you a better return than a regular cash ISA, there is, however, the risk that your money can go down.
For the purpose of this guide, we will dig deeper to innovative finance & stocks and shares ISA.
So what are stocks and shares ISA?
Stocks and shares ISA, as the names imply are ISAs managed by fund managers whereby your investment is used to invest in shares of companies, funds(which can include bonds and shares)or corporate and Government bonds.
All capital gains and income are protected from Tax.
The platforms you can access property investments via include:
BrickLane follows the stocks and shares ISA route, you can invest in property through bricklane by owning a share of either their regional fund or London fund which owns and manages properties.This helps mitigate the risk as your investments are spread amongst numerous properties in the fund. The Bricklane property ISA allows you to invest in residential property in the UK.Your annual ISA allowance still applies and you can move your current ISA over to Bricklane at any time.
Bricklanes’ returns reflect both rental yield and property price growth. Bricklane focuses on the London area and regional capitals with acclaimed returns of 8.74% for London since its launch in July 2017 and 12.8% for the regional capitals since its launch in September 2016 which is the equivalent of 8.5% per year.Bricklane pays out a quarterly dividend from earnings derived from rental income.You can take this money out or choose to have it automatically reinvested into your chosen fund.
To put this into context, if you had invested your £20,000 ISA allowance into Bricklanes’ regional fund you would have at least £22,000 after a year. A fair return we think!
So how do you exit your Bricklane investment?
You can exit your investment by selling whatever shares you own in the fund to another investor. Bricklane says it will take you 2 weeks to exit your investments in normal market circumstances and if no buyer is available then you will have to wait or offer a discount to investors in a bid to make a sale happen faster.Bricklane manages this sale process for you and so far hasn't experienced a liquidity issue due to its 2week investment cycle.
A direct quote from Bricklane states “If you choose to wait for a buyer, and we take the view that there is likely to be a sustained imbalance of supply and demand in a given fund, the fund may choose to downsize and buy your shares back from you. If there is no money available for this purpose, the fund in question would sell property in order to generate it, which is the reason we make reference to 'the time it takes to sell a property, or longer' in relation to how long it can take to get your money back”
So what risks does Bricklane come with?
Well as with all investments your money can go up or down. As you can see from above there is no instant liquidity for your shares or any guarantee your money will be available as soon as you need it. However, shares are bought and sold every 2 weeks and there is a good liquidity to date for consumers who have made a withdrawal and sold their shares. Bricklane manages the withdrawal and sale of shares. Due to the 2-week investment cycle Bricklane has due to the close ended-fund there is less price volatility.This is a huge plus in comparison to Property partners open-ended fund nature where shares are traded daily.
Tax laws can always change which means your investment gains might change at any time.Your ISA allowance might also be affected by any changes to the law.
In the event you are unable to recover your funds, you are also protected by the financial services compensation scheme(FSCS), to a limit of £85,000 (bank default) or £50,000(Bricklanes default).
So what does Bricklane cost?
You can see a detailed guide on Bricklane's fees here https://bricklane.com/our-fees .Remember these are subject to change at any time.
Bricklane is a good option and so are the below.
Property partner is an investment platform that allows you to invest in residential and commercial property, unlike Bricklane. Your investments up to £50,000 are also covered by the financial services compensation scheme. Your funds are of course ring-fenced from all Propertypartner funds so you are not at any risk if the business goes bankrupt and your money is in Propertypartner’s client accounts this will be protected up to £85,000.
Unlike Bricklane, Propertypartner allows you to buy into chosen properties rather than an investment fund. This means you are in complete control of your investments. Each month Property partner will pay you a dividend which accounts for rental income after all costs.This route of investing in single properties might be seen as riskier as your investments might not be spread amongst numerous properties as such will be the case with Bricklane.
The all-time estimated annualized returns for Propertypartner so far has been 7.2%.
So How do you exit your Propertypartner investment?
You can sell your property partner investment to other investors at any time at no cost to you. Property partner says it takes on average a few days for your investment to sell. Property partner also offers a 5-year exit channel at market value for all investors. Property valuations are carried out by an independent chartered surveyor to value what your shares in the property are worth at the point of exit.
So what risks does Propertypartner come with?
As you should know, all investments can decline in value as well as go up. Estimated rental payments are not guaranteed and different circumstances may affect the rent actually agreed.
With property partner, you are usually invested in one property which of course greatly increases your risk as if that property fails you will lose your money.
There is also the issue of market liquidity. There might be no buyer in the market for your shares in the property and even so with the 5-year exit option, you will have to wait until the property is sold to exit your investment and this might take weeks if not months.
Propertypartner also has the right to dispose of properties which you are invested in at any time. They state on their website “Property Partner reserves the right to dispose of the property and return net proceeds to investors. This right is intended to cover unforeseen scenarios” ” As well as being likely to receive back substantially less than invested, the timing may be unwelcome and may result in the crystalisation of taxable income sooner than anticipated.”
So what does Propertypartner cost?
Propertypartner charges a one of 2% fee on the initial investment. These fees may change and you should contact Propertypartner directly for a full list of fees before investing.
Landbay is a bit different from both Propertypartner and Bricklane as your investments are in the form of property loans(Mortgages) for property developers.Your landbay investments are not protected by the Financial services compensation scheme, unlike Propertypartner.
With Landbay’s model, a developer applies for a mortgage through their platform. You then have the option to invest some or all of your money into different Landbay mortgage products. Your money is spread across different mortgages to reduce your risk and you can expect an annualized return of 3.54% for fixed rates and 3.06% for tracker rate mortgages.
Landbay also has a reserve fund to protect investors in case of arrears from borrowers.
So what are the risks with Landbay?
Well, property prices can fall at any time and this can greatly reduce the value of your investments. Landbay, however, takes every application through a strict underwriting process to ensure that the individuals who they loan to are creditworthy and the properties meet their minimum requirement.This risk is also mitigated by the fact that your investment is spread out amongst different loan products.
The other risk with landbay is of course the risk that the borrower will not repay their mortgage.Landbay has strict policies in place to recover lost mortgage payments and can even collect rent directly from the tenants in the case the property is a rental property.
Landbay also has the ability to repossess a property to recover lost funds. It also has the reserve fund which can be used to pay investors in the eventuality of a borrower default. It is worth noting that this is a discretionary reserve fund and Landbay does not make any guarantees to acceptance or payment of claims made by investors.
So what does it cost?
Amongst all the companies we looked at for this guide, it was hard to come to a conclusion on what the Landbay platform will cost you as an investor.You should contact Landbay directly for a full list of fees before investing in their platform.
Remember this is not financial advice folks.