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How to start investing in property in the UK

Investing in property starts with understanding the various ways you can get involved in this market. Some investment routes are much easier, requiring less capital and stress, than others. Learn how to start investing in property without buying a house, how much money it takes, what the potential returns and risks are, and some of the best places to invest.

How much money do I need to start investing in property?

Investing in real estate doesn’t require much money at all. Nor do you need to worry about finding a real estate agent or actually buying a house.

One of the simplest ways to get involved in real estate is through real estate investment trusts (REITs). The trust, which issues shares on the stock exchange, owns properties. By owning shares of the REIT, you own a piece of the properties. Therefore, you’re entitled to a portion of the rental income that is received by the trust. The price of the REIT will typically move up and down as the real estate values within the fund also rise and fall.

Investing in homebuilder stocks is another way to indirectly invest in the property market. Shares of REITs and homebuilders can be purchased in a normal trading account or in a tax-advantaged stocks and shares ISA account​.

Through REITs or homebuilder stocks, you can get started in real estate by investing a couple of hundred pounds, in comparison with coming up with a down payment of at least 5% of the purchase price for buying a physical property.

Why is property a good investment?

So, why invest in property? Property is generally a long-term investment, given that the price of real estate has generally increased over the long term. That said, there are periods where property values fall, especially after a strong price rise when values are inflated.

Between 1975 and 2020, UK housing prices returned 2.08% per year, adjusted for (after) inflation, according to data by the Nationwide house price index. Over the long run, owning property can help to beat inflation and provide a return to build wealth.

REITs can also see strong price appreciation. Since 2013, the iShares SPDR Dow Jones Global Real Estate UCITS ETF has returned 102% or about 8.1% per year​. Property investments can also provide portfolio diversification and may provide a steady stream of income if the REIT distributes the rental income it receives.

What are the risks?

Real estate is an illiquid asset. That means it can’t be bought or sold quickly, compared to a stock. However, investing in REITs alleviates this since you can sell your shares with ease on the stock exchange any time you wish.

Real estate prices also tend to fluctuate, meaning you could lose money over a given down period.

Properties are subject to damage as well as wear and tear, which may bring down their overall value. Fixing damage costs money, reducing the return on the asset. That said, putting money into renovating a property may actually increase the return by elevating its value.

What are the different types of property investment?

There are many ways to get involved in real estate. Some require large amounts of cash and time, while others require little capital and time. Here are some examples.

REITs and property ETFs

  • One way to get involved in real estate is to invest in property shares, such as REITs or ETFs. Learn about investing in the stock market​.

  • These funds will already own a collection of residential and/or commercial properties.

  • By investing, you get to participate in the cash flow and potential rising prices of those assets.

  • You can buy and sell when you please, but the price of the fund is constantly fluctuating.

  • You can choose between funds that offer high yields (dividend payouts​) or those that are more focused on adding properties to the portfolio and growing the price of the fund as the assets grow in value.

  • Can be bought within a tax-advantaged stock and shares ISA, where you won’t have to pay capital gains tax or stamp duty, nor declare any income or interest on a tax return.

Homebuilder stocks

  • An easy way to gain exposure to the real estate market.

  • Homebuilders tend to do very well when the property market is booming since there is a high demand for new properties.

  • Not all home builders are alike, so some traders would pick stocks with a strong performance history and a good reputation in the industry.

  • Homebuilder stocks are individual companies, so they tend to be more volatile than REITs. Consider buying a homebuilder ETF, which includes many homebuilder stocks, to avoid having all your capital in only one or two.

  • Can be bought within a stock and shares ISA.

Existing properties

  • Unless you plan to live in it, people typically buy to let.

  • Buy to let can create a regular income stream.

  • Upfront and recurring costs are high compared with REITs.

  • You own the property and get to manage it how you want, which is not possible with a REIT.

  • You will likely face fees and taxes.

New builds

  • Constructing a new residential or commercial property allows you to create exactly what you want.

  • This has a high upfront cost and requires a lot of market research to make sure you can rent it out for a desired yield or sell it to recoup costs.

  • Delays or problems with labour or supplies can drive costs – and stress levels – up.

  • You will likely face fees and taxes.

Foreign property

  • This approach often requires paying the entire purchase price upfront since buyers may not be able to get mortgages in foreign countries.

  • You can take advantage of the lower property costs that exist in some locations around the world.

  • It may not be easy to buy or sell, and regulations around foreign ownership may change over time.

  • You will likely face fees and taxes.

Investing in property shares/ETFs vs buying a house

These two types of investments are quite different, each with its own pros and cons.

Investing in property shares/ETFs Buying a house
Owning shares doesn’t give you this option. If you buy a house, you can live in it.
Owning property shares will take up little of your time, and someone else will be doing the repairs and upkeep. Buying a house comes with costs, such as upkeep, as well as the time required to make repairs.
ETFs and REITs typically employ real estate experts to find properties to invest in. Most buyers are reliant on the expertise and advice of their real estate agent.
With a property ETF or REIT, you invest once, and no additional capital or services are then required. Buying a house requires an initial large capital outlay, which can expand with the taking out of loans and finding money for its upkeep.
With a property ETF, the fund handles the rent and just pays you what you are owed each month or quarter. If you buy to let your property, you are responsible for collecting the rent.

What have been the best places to invest in the past three years?

Here is a list of the top-performing real estate ETFs and REITs listed on the London Stock Exchange. These were some of the best places to invest in property over the last three years in terms of returns (between December 2018 and December 2021), according to data by Yahoo Finance.

  1. Primary Health Properties (PHP) is a REIT focused on UK healthcare properties. The trust returned 36.5% over the last three years.
  2. The LXI REIT (LXI) focuses on UK real estate and returned 26.9% over the last three years.
  3. Helical Bar (HLCL) is a REIT with a mix of commercial and residential properties in the UK. The trust returned 35.9% over the last three years.
  4. The iShares US Property Yield UCITS ETF (IUSP) invests in US properties and real estate funds that provide at least a 2% dividend yield per year. The fund returned 23.2% over the last three years.
  5. The iShares MSCI Target UK Real Estate UCITS ETF (UKRE) attempts to provide a less-leveraged approach to investing in UK real estate by also owning bonds. It returned 19.5% over the last three years.

Please remember that past performance is not a reliable indicator of future results.

As for REITs listed on US exchanges, Plymouth Industrial (PLYM) returned 192.13%, Independence Realty (IRT) returned 180.86%, and Rexford (REXR) returned 148.68% over the last three years.

What factors move the price of investment property?

  • Supply and demand. The more properties that are up for sale, the more prices will be weighed down. The more buyers than there are properties, the more prices will be pushed up.

  • Interest rates. House prices tend to move inversely with these (although not always). As interest rates rise, the costs of mortgages increase, which tend to lower property prices.

  • Rental yields. These can affect the price of properties. If properties are cheap relative to rent, people tend to start buying properties more, pushing prices up. If properties are expensive relative to what they can get for rent, owners are more inclined to sell, pushing prices down.

  • Stamp duty. These can affect property values. Having to pay tax affects how people purchase things. However, where there is a first-time homebuyer exemption for a certain amount of time, this will help lure in additional buyers, which may help push property prices higher.

  • Mortgage availability. If lenders are less eager to hand out loans, that will mean fewer buyers. When a mortgage is easy to come by, that means more potential buyers to push prices up.

What are some strategies to use?

There are several strategies you can use to start investing in property.

If you are looking for short-term gains, consider flipping. This requires an extensive knowledge of the market as it involves buying distressed properties and fixing them up for a quick sale.

If you are seeking an income, look for properties with high rental potential. Even if you don’t think you will let your property, consider looking at the rental market for similar properties. If you can let it for more than you are paying per month (or close to it), that’s a nice safety net to have in case you need to rent it out at a later date.

If you want to just sit back and relax without the headache of owning physical real estate, then owning REITs and property ETFs may be the simplest way. That said, you should still have an exit plan. While we never like to think about an investment going badly, consider how and when you will exit if the investment doesn’t produce returns. There are other funds, so avoid keeping capital in a fund for the long-term, which isn’t producing the returns you are happy with. You could also consider more short-term investments​.

And always remember, if are you buying physical property, the price is negotiable. Unless you know there is lots of interest in the property, you could try to get the best possible deal on it.


Is real estate a short-term investment?

Typically, real estate is viewed as a long-term investment since housing prices tend to appreciate a few per cent per year over the long run. See examples of short-term investments, which includes savings accounts and short-term bond funds.

Does Warren Buffett invest in real estate?

Through his company Berkshire Hathaway, Warren Buffett often owns some REITs but does not typically invest in physical real estate. See some of Buffet’s investment strategies that he tends to employ.

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