Property investment can be a very busy process, but for those who are new to the sector, passive strategies can be a good way to make money without investing time.
The property market is a more popular investment asset than it’s ever been before, with the UK’s total housing valuation now coming in at £6.8 trillion as of 2017, rising from the £6 trillion-barrier being broken for the first time last year. This continued increase in the value of property, as well as the relative safety it offers through political and socio-economic turbulence, has meant more people turning to investment in the sector over the past few years, particularly when it comes to rental homes.
Rental properties, according to the Council of Mortgage Lenders (CML) have grown in number massively since the turn of the century. In 2000, they were accounting for a little over nine per cent of all homes, but as demand soared, so has investment, and in just 15 years, the proportion of rental homes grew 125 per cent to command a 19 per cent share of the market.
This is expected to continue to rise, hitting a quarter by 2021 as many still see the benefits of investing in an asset that can bring them returns of upwards of six or seven per cent. But for many, one of the traditional issues with property investment is what still keeps them away, even though it shouldn’t.
Landlords have always been portrayed as some of the busiest investors in any asset class. Having to deal with repairs, tenant demands and sourcing someone new to pay their rent (as well as chasing payments) are just a few of the endless tasks that most newcomers would associate with being a landlord. However, for busy investors who want an asset class that not only delivers in financial terms, but also fits into their lifestyle, property has become an ever more attractive proposition.
The emergence of Build to Rent, where homes are constructed specifically for the private rented sector, and the associated management that comes with this, has brought about more widespread passive off plan property investment, and this is ideal for those who want something a little less time-consuming.
What is passive investment?
Essentially, passive investment is something that we normally associate with the more traditional asset classes for investors. These tend to be assets where the buyer can put their money in and make an income without necessarily having to do much (aside from portfolio management).
The easiest examples are stocks and shares, where a buyer will invest money in a company, but never actually has to do too much in the way of work in order to see returns at the other end. This is in stark contrast to how many perceive the property market, and the reason a small number of newcomers may see the traditional asset classes as a more profitable prospect.
Why is passive investment in property a good strategy?
For those looking for asset classes that perform highly, but who do not have the time to commit to being a “traditional landlord”, investment in passive property types could well be the way forward. Imagine being able to make promised returns of more than seven or eight per cent over the first few years of investment, and all without having to lift a finger.
This is something that can be done with off-plan investment in the growing Build to Rent sector, where investors will purchase single units (or more) in an upcoming development. By doing so, not only are they able to buy at below market value, they also secure themselves returns for a number of years, and get all the benefits of being a landlord without having to act like one.
In many of these new developments, the day to day property management will be handled by agents who are experts in property. This means that finding tenants, dealing with documentation and checks, maintenance, repairs, inspections and chasing rent are all handled by someone else, leaving the owner with the income and return on spend they desire, but without having to dedicate large swathes of time to the process.
What’s more, niche assets like student property investment have proven popular with investors over the last few years who have benefitted from higher than average returns from a continually rising number of students studying in the UK. Similar to the Build to Rent model, investors are able to secure assured returns from a fully managed room and receive a passive rental income.
It means that those who have previously not had the time to enjoy all the perks of being a property investor because of time constraints now can. Passive strategies mean being able to embrace rental properties and the returns that come with this, all while not breaking stride in your busy life, ideal for newcomers to the property market.