One of the main reasons people invest in property is that it’s a physical, tangible asset. But investing in property means working out what approach works best for you.
Do you want a reliable income over a period of time, or do you want to take a bit more of a risk in return for larger potential rewards? Or do you want to find a way that provides the best of both worlds?
For the sake of example, let’s say you have £300,000 to invest in property.
If you’re more interested in a solid, steady return, then you’re probably looking at rental yield income (the amount of money you can make from renting a property out).
The net rental yield is the annual rental income, minus expenses (taxes, insurance, fees, repairs, etc) expressed as a percentage of the cost of the property.
So, let’s say you buy a £100,000 property that you rent for £500 pm (£6000 pa) and annual expenses are £1000 a year, then the net yield would be 5%. For a gross yield, just skip the expenses in the calculation – in this example, it would be a 6% return.
Some people prefer to invest in property with the intention of selling it for a higher price. This means concentrating more on capital growth – the amount that your investment (the capital) becomes worth over time (hopefully the growth).
Maximising capital growth usually means investing your £100,000 in a property that you feel may be undervalued, or have high growth potential over time. Local knowledge can be vital here – if you’re aware that an area is undergoing regeneration, such as upgraded infrastructure, or higher end shops appearing on the highstreet, then that could be a good time to invest.
Ideally, an investment could involve elements of both – a property that gains a good rental yield, but also has the opportunity for capital growth. But that isn’t always easy to find and competition for these may be high.
This is where the newer option of property crowdfunding could make a big difference. Instead of investing that £100,000 into one property, you can split it across numerous properties.
Some of these could be more angled towards good, solid rental yields, while others could be with an eye more towards capital growth, or even properties with rental yields that also have potential for capital growth.
By working with crowdfunding companies with strong knowledge of both sectors and spreading the money across both approaches, it could be possible to get the best of all worlds.
Because property crowdfunding consists of investing into the property market, one particular benefit is that you can earn rental income from real assets whose values should keep track of inflation.
With any investment, whether it’s about yield, gain or a mixture of the two in crowdfunding, it’s vital to do your research. Work out what you want to achieve and research the risks and benefits of each kind of investment.
If you’re interested in property crowdfunding, join Brickowner today.