Cash, mortgage or investment fund?
You need to consider which form of financing will work best for your investment goals.
If you decide on a buy-to-let investment, then there are certain factors to consider:
1. You won’t have fast access to your money – while investing in shares and bonds mean you can sell fairly easily, property takes time to sell.
2. It’s a big commitment – try to avoid putting all your financial eggs into one basket.
3. There are buying and selling costs – estate agent fees, surveyors costs, solicitors’ and conveyancing bills… there are many costs involved. Since April 20169, an extra 3% was added to each Stamp Duty band for those buying a buy-to-let property.
4. It can be a time suck – maintenance work and property management will always take time and money. If you don’t own the freehold, you may need to extend the leasehold and this takes time and money to arrange.
5. Think about the mortgage risks – if you take out a mortgage or another type of loan to buy property, then there is no concrete guarantee that you will always earn enough rent to cover the repayments. The cost of the mortgage may rise, and failure to meet its costs will mean losing your property if you don’t have contingency plans.
Investing indirectly through a fund
If you don’t want to go ‘all in’ and hold sole responsibility for your property investment, then there are several different types of property funds allowing for indirect property investment.
Fund managers are people who collect money from lots of different investors and invest it directly into property shares or property. This is known as a collective (or pooled fund) and it can be a safer way to invest in property. It means you’re not solely responsible for the investment, but you will have to pay fees to the fund manager.
Before you invest – Research, research, research!
Lots of useful information can be found online, and there are also many advisors available to help you.
Make sure you find out as much as you can, and consider which kind of investment will best suit you and your investment goals.