Property is well known to be a stable investment and is one of the few investments that are largely shielded by economic uncertainty.
However, many property investors are focused in the buy-to-let sector and this is becoming less attractive.
Buy-to-let costs are up, largely due to recent regulations increasing tax for buy-to-let landlords. Whilst Real Estate Investment Trusts (REIT) are still attractive to investors, a platform growing in popularity is peer-to-peer (P2P) lending platforms.
Similar to property bonds, P2P enables individuals to obtain loans from other individuals, saving money as opposed to going to a bank or other financial institution. P2P is also less costly than buy-to-let and offers more attractive returns than REIT’s, proving a great entry into brick and mortar investing.
An increasingly popular choice
The reason for the popularity of P2P is down to the security of the investment and also the healthy returns. You invest in bricks and mortar and benefit from the security that this asset class has offered for decades. With ROI of between 7 – 12%, there are modest returns to be had also.
Most P2P offer funds to property developers, usually through financial introducers. Depending on the project, investors can often invest as little as £5,000, making this a great entry level investment. More sophisticated investors will find opportunities with property bonds.
With due diligence carried out by the P2P lender and the investment generally hands-off, these loans are secure and rightfully highly sought. As always, it is important you carry out your own due diligence before making any investment.
The benefits over alternative assets
For the past decade, buy-to-let has been the investment of choice. However, the 3% additional stamp duty surcharge has made the investment considerably more expensive. When combined with tighter lending restrictions brought in at the start of 2017, buy-to-let volumes have decreased – an 80% fall in new lending over two years from £25bn to just £5bn.
The decline is set to be a long-term trend also. Buy-to-let purchases have declined 15% in 2018 alone, with only one in ten purchases being for buy-to-let compared to one in five in 2011. With future investment looking to continue this trend, we are seeing significant changes in the market.
In addition to buy.to-let, REITS are not as safe as they once were. British Land, a high yielding REIT offers dividend yields of 5.07%. Investors need to be keeping a close eye on the level of debt in a REIT, however.
Leveraging debt prevents the REIT from calling on investors for additional funds and diluting the share price. The long-term affect could be damaging to investors, harming the ability to repay the debt and ultimately investors.
The case for P2P
Diversify your investments
One of the major benefits of going P2P for sophisticated investors is the opportunity to diversify your investments.
Where one asset class, buy-to-let for instance, is perhaps underperforming on estimated returns, other investments such as a P2P investment, based on current demand and returns, is returning higher than previous estimates.
This diversification of investments is a more secure method to take when investing, as opposed to putting all of your metaphorical eggs into one basket.
A stable investment
P2P investments do not sit on the stock exchange and so returns are not affected by the same fluctuations as stock investments are. This method of investing also allows you to invest in businesses and people you support directly, as opposed to a reliance on the bank.
Controlled, high returns
You can decide which platforms to lend across and, in most cases, select the individual loans you want to invest in within the platform. From sheltered returns from tax and an ability to draw income or grow capital over the long-term, the benefits of this investment type are impressive.