How to invest in property - without actually owning any

We explain how to invest in property without having to actually own any bricks and mortar

How to invest in property
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If you're looking to invest in property, ever-rising prices can make it an attractive investment - but you don’t have to own a house or office block to benefit.

The latest Halifax House Price Index shows average residential property prices rose 9.8% in the year to December 2021. The average house price is now £276,091. And according to real estate adviser CBRE, returns on commercial property are up 1.1% annually.

If you're looking to tap into this growth, the good news is you don’t have to be a homeowner or a landlord to access these sorts of returns and there are plenty of opportunities to invest in bricks and mortar, even if you aren’t on the property ladder.

Investing in property can be less hassle than owning one as you don’t have to worry about repairs and maintenance and can generate passive income. 

Property prices can go up and down depending on supply and demand but it is an asset that is separate to the stock market, helping diversify how and where your money is invested.

Here is how you can invest in property without having to buy one.

Invest in property with housebuilding shares

Rather than buying a property, you could own a stake in the companies building them.

Many of the largest housebuilders such as Persimmon and Barratt Homes are listed on the stock market, as are companies such as brick manufactures and building materials firms that supply them.

Investors can buy shares in these companies through a broker or DIY investment platform, where you could earn your returns tax-free through an ISA or in a pension.

The cost will depend on the company’s share price but some platforms or investment apps will let you buy fractions of a share so you don’t need to purchase the full amount.

There may also be trading and annual platform fees.

Owning shares means that when a publicly-listed company such as a housebuilder does well and their share price rises, so will the value of your investment.

It also works the other way though, so your stake will go down in value if the share price falls.

Do your research when investing in any shares as there are lots of factors that can influence stock prices such as financial results, press coverage and key hires.

Political and economic factors can also have an impact on share prices.

For example, housebuilding shares plummeted when the property market was closed and lockdowns were introduced in March 2020.

The share prices of many of these companies are only just returning to their pre-pandemic levels.

Investing in property funds

Rather than choosing your own housebuilding or bricks and mortar-related shares, you could let someone else do the work for you by investing in property funds.

These are run by investment firms who appoint fund managers to invest either directly into a diversified portfolio of commercial or residential properties or to purchase shares of property companies.

Same may do both.

You could put money into an open-ended fund, where you own a unit of the investment portfolio.

But this can cause issues when lots of investors want to make withdrawals as a fund manager may have to sell stakes in the underlying properties if there isn’t enough spare cash, which can take time.

Some property funds were temporarily suspended during the pandemic as they couldn’t keep up with demand from worried investors who wanted to get their money out.

An alternative is exchange-traded funds that track a portfolio of shares in property companies or  investment trusts.

Investors own a share in a listed investment company, making it easier to sell if you need to access your money.

Some investment trusts will let you invest from £25 per month. There will also be fund charges and there may be fees if you are investing through a platform.

Real Estate Investment Trusts (REIT) 

A REIT is a type of investment trust but some may be owned by a single company such as British Land and invest in their own developments rather than diversifying across a portfolio of different ones.

“Choosing to use a REIT can be a better option for those not yet in a position to purchase property outright,” says Sam Barrett, global property director at advisory firm AHR Private Wealth.

“The barriers to entry are greatly reduced, with investors seeing potentially healthy returns on investments from as little as one share.”

Private funds

Property investment and development companies may have their own private funds where they find and renovate developments to sell on or earn an income.

There will be annual fees to pay and it may be hard to get your money early as investors are typically expected to wait until a development is completed.

Minimum investments can be high although some will let investors team up in syndicates to meet the required amount.

Peer-to-peer lending

Peer-to-peer (P2P) lending cuts out the middleman and connects investors directly with borrowers.

There are P2P lending platforms such as CrowdProperty and Blend Network that let investors fund loans to property developers in return for what is usually an inflation-beating rate of interest.

Rates can reach double digits but there are risks that you could lose all or some of your money if a borrower defaults.

P2P lenders also don’t fall under the Financial Services Compensation Scheme (FSCS) so your money won’t be protected if a platform goes bust, although all providers are supposed to have wind down plans and should keep client money separate.

Minimum investments can be as low as £500 and investors usually don’t have to pay any fees unless you are selling loans on their secondary market.

You could even earn your P2P lending returns tax-free if you choose a property platform’s Innovative Finance ISA.

This is another form of ISA that forms part of your annual £20,000 allowance.

Roxana Mohammadian-Molina, chief strategy officer at Blend Network, says P2P property lending provides an attractive fixed yield product.

“P2P property lending offers a good protection against inflation because it provides fixed returns, and returns that can be in some cases above equity markets,” she says.

“Right now, in the face of growing inflation concerns, everyone is looking for yield and the idea of fixed returns is appealing.”

Ramsey Assal, chief executive of property networking platform The Landsite, says P2P property lending can generate lucrative returns but investors must do their research and invest for the long term.

Marc Shoffman
Marc Shoffman

Marc is an award-winning freelance journalist specialising in business and personal finance. His work has appeared in print and online publications ranging from FT Business to This is Money, The Sun, The i newspaper, The Times and The Mail on Sunday. He also co-presents the In For A Penny financial planning podcast.