Types of Property Investment: A Brief Guide

Property is, without question, one of the more popular areas of investment at present. It has long had a reputation for outperforming the stock market and equities in total net returns, and the difference is especially marked at present. Seasoned investors and newcomers are increasingly turning to bricks and mortar as a source of investment income.

Property Numbers

Property is, without question, one of the more popular areas of investment at present. It has long had a reputation for outperforming the stock market and equities in total net returns, and the difference is especially marked at present. Seasoned investors and newcomers are increasingly turning to bricks and mortar as a source of investment income.

However, property isnt just a single asset type. There are various different kinds of property with very significant differences between them. Some of the key, popular classes of property for investors include:

Residential

Buy-to-let homes are perhaps the first thing many people think of when they consider investing in property for the first time. In the last ten years, the private rented housing sector has doubled in size as a result of high housing prices and reluctance of lenders to give new credit. Demand for rented accommodation is high, and supply is not entirely adequate in many of the UKs markets. Returns come through both the liquid channel of rent and the illiquid route of capital growth, and total yields can be attractive, averaging 5% but noticeably higher in some places.

However, buy-to-let property investment private housing can be a difficult thing to truly master and it can be hard for new investors to make it genuinely profitable. Furthermore, yields vary significantly between different locations and property types, so careful research is necessary in order to invest successfully. Maintenance costs, letting agent fees and the time a property spends standing empty in between tenants can eat into returns.

Commercial

Commercial properties are traditionally institutional assets bought by investment funds. They can also be worthwhile for individual investors, but are often too expensive so funds can be a more accessible approach. They tend to be higher-yielding than residential properties, though there are a number of quite different types of commercial property and these can vary quite a bit. Average returns range from 4.5% for offices to 10% for high street units.

Commercial properties tend to have lower levels of volatility than many other kinds of investment, but at the same time its reliance on factors like consumer spending and job creation give you little protection against tough times in the wider economy. If youre interested in investing through a fund, look for those holding at least 40 properties and be aware that if there is ever a mass exodus of investors you may have to wait to receive your money while properties are sold off.

Student Property

Student property is a former niche investment asset, but has become increasingly popular in recent years and has grown to become the highest-performing asset class in the UK. It blends together many of the advantages of both residential and commercial investments – particularly with the growth of purpose-built student accommodation serving to transform the landscape of student housing. Yields are also comparatively high, averaging 6.25%.

Another attraction of student property investment, or at least purpose-built student property, is that it is often sold on a fully-managed basis making it a popular hands-off investment. It is also generally considered a good hedge against recession, as it was the only type of property which saw growth in yields during the most recent financial crisis. There are underperforming developments, so assess any given investment opportunity individually, but for the most part student property offers a relatively positive investment avenue.

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