How To Invest In Property Without Buying A House

Property investment can be a really good way to earn extra income, but not everyone has £20k for a deposit. And it’s not just the money that could be holding you back. Think about all the work that comes alongside investing in property. Maintenance, decoration, re-fittings, legal costs, etc. But luckily for you and me, there is another way! In this post, we’ll look into REITs and how to invest in property without buying a house.

What Is A REIT?

‘Real Estate Investment Trust’ is a company that owns, managed, or finances real estate. They are similar to mutual funds in that the fund is a pool of different investors. By investing in a REIT on your chosen investment platform, you can earn dividends from your real estate investments without having the stress of buying or managing property.

REITs may include apartment complexes, data centers, healthcare facilities, hotels, infrastructure, office buildings, shopping centers, self-storage, and warehouses. Usually, a REIT has just one or two (if combined like office and retail) in their portfolio so you can choose which real estate sector you invest into.

Most REITs are traded on major exchanges and you can buy and sell them as if they are individual stocks. To qualify as a REIT, a company must make at least 75% of its gross income from rent, interest on mortgages or real estate sales, pay 90% of its taxable income as shareholder dividends, have at least 100 shareholders after its first year, and have no more than 50% of its shares held by less than 6 people.

Types of REITs:

Equity REITs

The majority of REITs are Equity REITs. This means the company owns and operates real estate that generates an income such as rent.

Mortgage REITs

These lend money to those who own real estate. Earnings are made by the interest earned on the mortgages.

Hybrid REITs

As you can probably guess, Hybrid REITs combine the above two methods, both owning property that generates an income, and holding mortgages of which they gain from the interest earned.

How To Invest In REITS In The UK

If you already have an investment account with a platform that allows you to pick your own investments such as FreeTrade, Trading212, eToro, etc.. you’ll be able to search for REITs and go through the available options before deciding which one to invest in.

If available, you should try to invest inside a Stocks & Shares ISA as these are tax guarded accounts meaning that you will not have to pay capital gains tax or tax on dividends earned within the account (within your yearly ISA limit of £20,000), as these are the two ways you can earn money from your investments in REITs, it’s definitely worth looking into before investing.

If you already have a Stocks & Shares ISA, or another General Investment Account with a platform that manages your investment portfolio for you, or offers limited choices of investments, you can always open another General Investment Account with a platform that allows you to choose your own investments. If you already have a Stocks and Shares ISA which you have invested into this tax year, you will not be able to open a new one until the next tax year.