If you are thinking about investing in the property market, you may be put off by the recent uncertainty highlighted across all major news outlets. The cost of living crisis is still very prevalent, while high inflation has forced the Bank of England to raise interest rates earlier in 2023.
Both experienced and new investors are wondering whether now is a good time to sink their capital into the property market.
Property investors need a solid strategy to navigate these uncertain financial waters. While inflation and interest remain high, falling property prices suggest that investors with a long-term plan could benefit from substantial capital growth once the market inevitably recovers.
Read on for our top three investment strategies for 2024 and beyond.
One: Side-step high mortgage rates with cash investments
Cash investments are a savvy way to grow capital and enhance your investment portfolio while inflation is high. Mortgage rates continue to put off new investments, but if you invest cash into the property market, you’ll build your portfolio and make a tidy profit once house prices regain a healthy average price.
Cash investments will generally match inflation as interest rates increase. If you keep your money in a bank account or invest in a mortgage for a buy-to-let property, you may not achieve your desired profits. However, high-yielding assets purchased with cash will make the most of your money and improve your portfolio. There are useful tools available online from Mortgage calculators to reputable buy to let poperty tax fact sheets from companies such as RWinvest.
One such way to invest cash is through REITs.
What is a REIT?
A real estate investment trust (REIT) functions as a property investment firm that essentially replicates the tax implications of a direct investment in UK real estate. This structure helps bypass the extra layer of taxes that often come into play when utilising a corporate framework for investment.
Using REITs for real estate investment can enhance portfolio diversification, though it’s crucial to recognize that not all REITs offer the same advantages.
Certain REITs engage in direct property investment, generating income through rentals and management fees. Conversely, some REITs focus on property debt, including mortgages and mortgage-backed securities.
Furthermore, REITs often specialise in specific property sectors, such as retail complexes, hotels, resorts, or healthcare facilities.
One of the key attractions of REITs lies in their robust dividend yields, with a requirement to distribute 90% of taxable income to shareholders.
How to ensure you invest in a trustworthy REIT?
Investors should consider the following factors when choosing a REIT:
- A solid track record for proving high dividend yields and long-term capital appreciate
- A quality portfolio with attractive properties and compliant tenants
- ETFs or mutual funds that invest in REITs, meaning experienced professionals conduct the market research for you
- Trustworthy management with a substantial period of time in the industry – if a company has operated for several years, you are more likely to enjoy capital appreciation
Two: Venture into the “staycation” market
Amidst high inflation, investing in staycation properties may result in healthy capital growth. With COVID’s impact on the travel industry, budget-conscious travellers are shifting to staycations in a bid to enjoy a holiday while contending with rising living costs.
Anticipated high demand for staycation rentals in 2024 presents potentially lucrative investment opportunities. A Go Outdoors survey revealed 48% of Britons favour domestic travel due to the cost of living, while supply disruptions and conflict elevate travel expenses. Thus, short-term UK rentals are set to surge as international travel becomes less feasible for many Britons, ensuring sustained demand.
As such, property investors should consider putting their capital into the staycation market for optimal returns amidst changing travel trends, inflation, and supply challenges.
Three: Consider off-plan property investment
Off-plan property investment remains one of the least risky ways to venture into the property market, avoiding rising interest rates and enjoying substantial capital appreciation and potentially high rental yields if you invest in the right properties.
What is off-plan property investment?
Off-plan property investment refers to a strategy in which buyers purchase property from a developer when the property is still being built. Buyers can snag these properties at discounted prices – usually around 5 – 10% less than the actual value – allowing your capital to grow in an appreciating asset.
The benefits of off-plan property investment
Off-plan purchasing boasts numerous benefits for savvy investors.
For instance, when you invest during high inflation, you are more likely to attain a substantial capital appreciation as the property value increases during the construction period. If the property is located in a sought-after area going through rapid regeneration, the capital appreciation will be much higher. As such, investors should consult a reputable property investment company with a solid portfolio of off-plan properties. Research regenerating areas on the rise to find the best developments to invest your capital, companies such as RCCIL cover a lot of useful London based facts on property in the region.
Off-plan property investment can help you see a return on your investment quickly. However, investors may choose to tenant the property over an extended period. They will still enjoy capital appreciation, but will also receive regular rental payments, increasing their capital further.
Is property investment risky during high inflation?
If you are new to property investment, you may have reservations about committing capital to a project during high inflation. However, the property market has proven remarkably resilient through other hardships, including Brexit and other recessions.
While the interest rates make for grim reading, the housing sector still performs relatively well, despite housing prices falling to their lowest rate since 2009. In addition, the UK has seen a rise in demand for property that outstrips current supply. Manchester and Liverpool in particular are seeing a huge tenant demand.
Investors have a promising opportunity in the current buy-to-let market. Even when the cost of living smothers households, everybody still needs a home.
