Bricks and money How to make property pay
Despite rising prices, tighter lending criteria and measures to curb buy-to-let, investing in housing remains an attractive option – so how best to do it?
GO FOR BUY-TO-LET
PROS Choose wisely and it can bring you a profit and a regular income. It’s also a good way to pool family salaries, says Mark Harris, chief executive of mortgage broker SPF Private Clients. ‘A mother and daughter could take out a joint buy-to-let mortgage based on both of their incomes.’
CONS You’ll need a good deposit, ‘at least 20 per cent, with the best mortgage rates for those with 40 per cent,’ says Mark Harris. The interest rate will be higher than for a standard mortgage, and the rental income needs to meet at least 145 per cent of the monthly mortgage cost.
GIFT FAMILY A DEPOSIT…
PROS ‘A straightforward and relatively taxefficient option,’ says Edward Porter, private wealth associate at Michelmores law firm. ‘Provided the parent making the gift survives seven years it won’t incur inheritance tax (IHT).’
CONS Your ‘family’ money won’t be protected if a young couple were to divorce or go bankrupt.
…OR LOAN IT
PROS This can be organised through a trust, which gives protection and control to the lender.
CONS Although usually interest-free and tax and stamp duty efficient, it will still attract IHT, unless you do it through a trust.
PUT IT IN YOUR NAME
PROS Buy a property for your child in your name and you gain an asset.
CONS However, says Edward, this isn’t tax efficient, because it can be classed as a second home. ‘You’ll pay a stamp duty surcharge, currently three per cent above the standard rate. And when the property is sold, gains in value will be subject to Capital Gains. Also, it remains within the parental estate for IHT purposes.’
PICK A PROPERTY FUND
PROS You finance the purchase of a range of properties, traditionally commercial. ‘You just hand over your cash,’ says Gideon Sumption of Stacks Property Search. ‘The fund managers make the investment selection.’ This is a rapidly evolving sector, especially peer-to-peer-lending and crowd-funding. Check out thehousecrowd.com.
CONS This will cost you money whether you make a profit or not, as companies charge fees usually irrespective of their success.
BUY SHARES IN BUILDING COMPANIES
PROS You get direct exposure to the property market without buying, owning and managing property, explains Gideon. Given the need to build millions of homes, it’s a relatively safe investment.
CONS You have to use skill in selecting the right companies. ‘It’s best for people who think they know what’s going on in the market but can afford to be wrong,’ Gideon warns.
OWN STUDENT ACCOMMODATION
PROS Investing in purpose-built UK student accommodation is booming. ‘The trick is finding a sales agent with good long-term experience,’ says Jean Liggett, managing director of property investment consultancy Properties of the World.
CONS Make sure the company building and selling the development is within the same organisation as the management group, advises Jean, so they share the same goals.
INVEST IN CO-BUILDING
PROS A small development is funded by a group of individuals banding together.
CONS ‘They’re not easy to set up,’ says James Greenwood of Stacks Property Search. ‘Everyone comes with different capital and expectations. You need a group who know and trust each other, a good legal team to work out how to safeguard the funds, plus an exit strategy for each person.’