Residential property rents are rising. Rising rents, according to RICS, are due landlords pulling out of the housing market signalling the end of buy to let and creating a shortage in the supply of properties to let. A classic case of demand outstripping supply. Landlords are leaving the housing market as their profitability has reduced partly due to both changes in stamp duty and mortgage interest tax relief. We suggest investments made via property crowdfunding platforms offer an alternative way to invest and benefit from rising rental income.
Advantages of investing via a property crowdfunding platform:
- Diversification with minimal funds
- Invest in large-scale high-return property developments
- Tax efficiency
Diversification with minimal funds
Diversifying property investments with crowdfunding platforms, such as Brickowner, is easy. With traditional buy-to-let property investments, individuals have to buy entire properties – which in itself is a challenge when average property prices have been rising faster than average earnings. Moreover, as different local markets see different variations in house prices, landlords must build a wide portfolio of properties to mitigate market volatility and underperforming properties. Building up a diversified portfolio of housing is simply unachievable for large segments of the population. Instead, using the latest technology, platforms like Brickowner can aggregate a pool of smaller invests so they can each ‘dip their toe’ rather than commit all their funds to a single property investment. Our lower minimum investment (only £100) option allows investors to spread their investments across a multitude of property locations and types with ease and efficiency.
Investing through platforms benefits investors seeking an easier way to diversify their investments and smaller investors that wish to access the property market. For many, investing in property in the UK can be challenging because individuals cannot physically review each property investment without excessive travel. Whereas, with Brickowner, individuals can invest online, where comprehensive research by property managers has already been completed for them. Additionally, property investments made through Brickowner are passive rather than active investments. For smaller investors, such as prospective first-time buys, crowdfunding platforms offer an easy and efficient means to invest in property while saving for their own home.
Invest in large-scale high-return property developments
Thanks to property crowdfunding platforms, more people than ever can invest in large-scale high-return properties, not just the wealthiest individuals in society. Investors funds are aggregated with others to purchase shares in property investments, making the market more accessible to those fewer funds. Traditional large-scale property investments required minimum investment amounts of around £25,000. Smaller investors, using a platform, can now benefit from rising rents in residential properties and even commercial properties through Brickowner.
In the past, investors were able to deduct mortgage interest and other financial costs from their rental income before calculating their tax liabilities. This form of tax relief is gradually being phased away between April 2017 and April 2020. After the tax relief diminishes, landlords will be unable to deduct mortgage interest payments from their rental income – this will reduce the profitability of their investment. Fortunately, crowdfunding platforms, provide an alternative investment mechanism that is unaffected by the new tax changes [Link blog 2]. Note, platform investing is still subject to often lower rates of dividend and capital gains tax.
Investments made via a property crowdfunding website can be highly flexible. Secondary markets can provide a place for individuals to buy and sell shares in property investments. Subject to demand from other investors, an original property investor (using a platform) can sell their stake in an investment and leave early. Having the option to liquidate property investments prior to the investment term is not possible with the traditional property investments.
- Rental yields for residential properties are rising.
- Traditional buy-to-let landlords are leaving the market.
- You can benefit from these trends by investing in property via a property crowdfunding platform.
- Additional benefits of investing via a property crowdfunding platform include: Ease of diversification, increased accessibility to large-scale high-return investments, tax efficiency and enhanced flexibility to liquidate investments.