Indirect property investment offers investors an alternative route in to the property and real estate investment arena via the purchase of stocks and shares in trust companies, pension funds, Real Estate Investment Trusts or REITs, and the purchase of bonds, stocks and shares in other listed property companies.
Investing in property requires knowledge, a good element of skill, as well as a pinch of luck and good timing. In many instances it can also require a significant amount of up-front capital to kick-start the whole process, and it is this that often puts novice property investors off the idea.
There are however, different ways for prospective investors to get on to the property investment ladder – whether it be directly or indirectly.
Investment Property Partners guide to opportunities for indirect property investment includes a number of important factors that you may wish to consider if you are reviewing the indirect route to property investment.
What is Indirect Property Investment?
Indirect property investment describes the investment in stocks and shares of companies that specialise in property and real estate, property index derivatives, Real Estate Investment Trusts (REITs) or bonds of corporate property organisations.
The investor then hopes to receive a financial return in the form of dividends or an increase in the value of their stock holding based on the market performance of those stocks and shares, bonds etc.
Balancing Your Property Investment Portfolio
For many experienced property investors both direct and indirect property investments are essential in the creation of a balanced property portfolio.
Indirect investment in property assets is a great way to spread some of your risk and also to diversify your portfolio as opposed to sticking to one niche or property asset class.
Taking the indirect property investment route will give you bigger scope for success… it is also likely to leave you less exposed.
What about Direct & Indirect Property Investment?
Direct property investment is something that many investors and developers are familiar with on a day-to-day basis, a lot of them reporting high levels of success.
Indirect property investment however, is something that not many people are aware of but is something that also offers many beneficial opportunities.
One of the biggest advantages of indirect property investment is the fact that you do not have to commit significant capital sums to the acquisition of a large or expensive property asset like you do with direct property investment.
In many ways indirect investment is not as risky, even though you are still advised to exercise caution and always have your wits about you.
Another benefit is that there are no day-to-day property management costs associated with the indirect approach.
The Advantages of Indirect Property Investment
Indirect property investment has a number of advantages over direct property investment including:
Lower up-front capital investment
There is a reduced requirement for significant up-front capital expenditure.
Real property acquisition often requires a significant capital deposit as part of any finance agreement.
Shares on the other hand can be acquired to suit the investor’s budget.
Improved asset liquidity
There is an active market for stocks and shares making it significantly easier to sell them quickly and cost effectively.
Real property assets on the other hand can take time to sell, the transaction costs associated with the sale of property can also be significant.
Reduced management costs
Real property can be a resource and time intensive asset to maintain and this can increase investment holding costs.
Shares on the other hand can be held with little day-to-day input required.
Indirect Property Investment Vehicles
An example of an indirect investment would be to invest in a trust company or a UK Real Estate Investment Trust (REIT).
In the UK, both REITs and investment trust companies are approved by HMRC and are listed on the London Stock Exchange.
Most trust companies are based offshore for tax reasons and many are exempt from capital gains tax.
They also provide a cost effective way of getting into the global property market through stocks and shares.
Offshore UK property investment companies are another indirect avenue to look into, as are UK listed property companies.
A few more indirect investment options that you may wish to investigate include; UK authorised property unit trusts; unit linked life and pension funds and UK Real Estate Investment Trust (REITs).
Property Investment Solutions
As a leading independent property and land investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.
If you are a property investor searching for commercial property, residential buy to let or overseas property investment opportunities please contact us today to discuss how Investment Property Partners can help you.
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Further reading…
More information about Real Estate Investment Trust (REIT)… here →
More information about investment trusts… here →
