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What is a Property Investment?
There are both direct and indirect ways to invest in property. Outlined below are some forms of both types of investment.
Direct investment
This is where a property is bought and owned privately. This can take the shape of buying a home to live in, buy-to-let properties or investment in commercial property for those who can afford it. Buy-to-let has become an ever more popular way of trying to make money. Mortgages on buy-to-let properties are not regulated by the FSA like other forms of mortgage. However even though the housing market has been going from strength to strength there is no certainty that this will continue. There is a risk that people think it is an easy way to get rich quickly but there are risks associated with these investments.
Indirect investments
A more advanced way to invest in property is through Open Ended Investment Companies (OEICs), unit trusts, property funds and life assurance policies. Many of these funds will only partially invest in property so that they spread the risk between property, cash, shares and bonds. Some schemes will be regulated by the FSA but it is not always the case for unit trusts.
These forms of investment allow for individuals to access professional expertise, a reduction of dealing costs, less administration and a much wider choice of property investments.
Top Tips:
- There is no certainty that property prices will increase. However there are certain ways to minimise any losses on property by assessing the population, the need for housing and the development of the area.
- When investing in collective schemes make sure that you understand the proportions of money being invested and any gearing that may occur.
- If the scheme is regulated make sure you understand the risks and if the scheme is not regulated then find out what the risks are if they are not apparent.
- Be wary of overseas investment. This can be hugely profitable but local laws can sometimes upset investors if they have not studied them sufficiently. Seek advice.
- If investing directly into property be aware of the running costs ie. Maintainance, repairs, management fees if property is to be let, periods with no tenant etc.