Investing in Property without becoming a Landlord

Investing in property is a popular way of seeking growth in one’s wealth and securing an income stream. For many investors, this has been achieved through buying property to let out to tenants. However, managing tenants, maintaining a property and complying with ever-evolving regulations can be both stressful and time-consuming. Fortunately, it is also possible to benefit from property investment without becoming a landlord. This article explores some alternative ways of investing in property without taking on the day-to-day responsibilities of ownership as a landlord.

Why Are Some Investors Avoiding Buy-to-Let (BTL) Property?

The buy to let property model has faced several challenges in recent years. Changes to tax policy, such as reduction of mortgage interest relief, as well as stricter regulations on safety, licensing and energy efficiency standards, have all made owning BTL property more complex. Additionally, landlords are required to manage tenants, handle maintenance, deal with void periods and sometimes navigate legal disputes. As such, some investors who want exposure to the property market want alternatives.

Other Property Investment Solutions

1. Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a company that owns or finances income-generating properties across a wide range of uses from office blocks to shopping centres and residential flats. You can purchase shares in a REIT just as you would in any listed company. REITs allow you to invest in property without owning bricks and mortar directly.

Advantages:

• Liquid, as they trade on the stock exchange, meaning that you can buy and sell your REIT shares at any time just like other publicly traded stocks. This flexibility makes REITs especially attractive compared to the hassle of buying and selling a physical BTL property.

• Diversified property portfolios help to spread your risk across different uses and geographic regions. By investing in a REIT, you can, for example, potentially gain exposure to offices, retail spaces, residential flats and even healthcare properties in a single transaction.

• No involvement in managing the underlying assets means that you do not need to handle tenant complaints or building maintenance. This is perfect for investors who want property exposure without any of the day-to-day obligations.

Disadvantages:

• Performance is linked to market conditions, so REIT prices can fall during stock market downturns even if the underlying properties themselves are performing well. Market sentiment can influence the share price just as much as property fundamentals.

• Less control over which assets the REIT invests in can be a downside if you want a say in specific projects or sectors. Investors must also trust the REIT’s management team to make the right decisions.

2. Property Crowdfunding

Property crowdfunding platforms allow you to pool funds with other investors to buy or lend against property. Some of these platforms let you invest for equity, essentially owning a share of a specific building, while others let you provide loans to developers.

Advantages:

• Lower entry costs than buying property outright, often with investments as low as £100. This makes property crowdfunding more accessible to smaller investors.

• Flexibility in project selection allows you to back projects you find interesting. This can align your investments with your personal choices or preferred risk profile.

• Potential for decent returns comes from accessing projects at an early stage or supporting niche markets. If the project performs well, the upside can be greater than that of a traditional BTL property.

Disadvantages:

• Higher risk of loss if the project underperforms or the developer goes bust. As with any investment, higher returns usually mean higher risk.

• Platform reliability varies, so due diligence is essential. Ensure that you check the platform’s FCA status and track record. Taking the time to do thorough research can also help avoid potential scams or underperforming platforms.

3. Real Estate Funds

Real estate-focused mutual funds and exchange-traded funds (ETFs) are another alternative. These funds may hold REITs, shares of property developers and even construction firms, giving you broad property exposure through one investment vehicle.

Advantages:

• Professionally managed funds give you the expertise of experienced investment managers who research, monitor and adjust holdings. This can be a significant benefit compared to managing a property portfolio yourself.

• Diversified holdings often include different types of real estate, developers or even international assets. Spreading risk across many sectors can cushion you from downturns in any one part of the market.

Disadvantages:

• Fees may be higher than investing directly in REITs because you are paying for active fund management.

• Indirect exposure to bricks and mortar means you never actually own physical property yourself. For some, this may feel less tangible or reassuring than owning a property.

4. Property Bonds

Property bonds are essentially a loan from you to a developer. In return, you get a fixed interest rate over an agreed term. These bonds are frequently used to finance new housing developments or commercial refurbishments.

Advantages:

• Predictable, fixed returns provide a sense of security and stability for income-focused investors. You will know in advance how much interest you will earn and when it will be paid.

• No ownership or management responsibilities allow you to lend to the sector without worrying about maintenance, tenants or compliance issues. This creates a truly passive property investment opportunity.

Disadvantages:

• Typically illiquid until maturity, meaning that you may have to wait years to get your money back. Selling early can be difficult or even impossible depending on the bond’s terms.

• Risk of developer default can be significant if the property market weakens or the developer runs into trouble. Always check carefully before investing.

5. Buy Shares in Property Companies

Another simple way to gain exposure to the property market is through investing in shares of housebuilders, commercial landlords or property developers. Examples include Barratt Developments, Persimmon or Land Securities.

Advantages:

• Easily bought and sold on the stock exchange through any standard share-dealing platform. This means you can invest or exit at the click of a button, providing flexibility that owning buy to let property does not.

• Possibility of dividend income on top of share price growth, providing two potential sources of return. Housebuilders and commercial landlords often distribute profits regularly.

• Exposure to capital growth in booming markets can be considerable, especially if a company’s share price benefits from rising house prices or large commercial deals. This can help you beat inflation over the long term.

Disadvantages:

• Subject to overall market swings, meaning share prices can fall regardless of the company’s own success. Investors may need to accept higher volatility compared to a traditional property purchase.

• Dependent on company performance, which means poor management decisions, bad publicity or missed targets can all negatively impact your investment. Researching the company’s track record is also important.

6. Joint Ventures and Property Syndicates

A joint venture or property syndicate involves partnering with others on a project. Often there is an “active partner” handling the management, while the remaining investors act as passive funders.

Advantages:

• Access to larger deals by pooling money with other investors, allowing you to invest in bigger projects that would otherwise be out of reach individually. This could include commercial developments or multi-unit apartment buildings.

• No active management is required if you are a silent partner, freeing up your time while still benefitting from the potential returns of large-scale property investment.

• Shared expertise between partners can open up new opportunities and reduce mistakes. Experienced partners often handle negotiations, paperwork and contractor management.

Disadvantages:

• Can be legally complex, with partnership agreements, profit-sharing rules and exit strategies to navigate. It is crucial to seek independent legal advice in order to protect your interests.

• Requires trust in partners, since passive funders will have less control over day-to-day decisions. Disagreements or poor communication could damage both relationships and returns.

Conclusion

Investing in property does not have to mean becoming a landlord. Whether you prefer a hands-off approach through REITs or real estate funds, or you are open to property crowdfunding or bonds, there are many ways to benefit from property investment. By stepping away from traditional BTL property models, you can still enjoy the growth and income of buying property, without the stress of being a landlord.

FAQs

Q. Can I still get rental income without managing tenants myself?

A. Real Estate Investment Trusts (REITs) often pay out rental income as dividends, meaning you can share in rental profits without having to manage a buy to let property directly.

Q. Are property crowdfunding platforms safe?

A. They are regulated by the Financial Conduct Authority (FCA), but still carry risks, especially if a property project underperforms. Always research the platform’s history, track record and due diligence processes.

Q. What’s the minimum I need to invest?

A. With crowdfunding platforms, you can start with as little as £100. For REITs or listed shares, you can invest the same way you would with ordinary shares, meaning entry amounts are very flexible.

Q. Can I lose money investing in REITs or property funds?

A. Yes, these investments can go down in value, especially if the property market or stock market takes a downturn. Diversification and a long-term view are essential.

Q. What is the difference between a REIT and a property fund?

A. A REIT is a property-owning company that trades on the stock market, while a property fund might hold REITs, developer shares or even related assets such as construction company shares. A property fund is essentially a basket of different property exposures.

Additional Sources

https://savingtool.co.uk/blog/how-to-invest-in-uk-property-without-being-a-landlord/

https://www.growthcapitalventures.co.uk/insights/blog/if-buy-to-let-is-no-longer-worth-it-what-other-options-do-you-have-as-a-property-investor

https://uk.finance.yahoo.com/news/four-ways-invest-property-without-070601121.html