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Indirect Property Investments – The Alternative Route for Investors into Real Estate

Property investments often form the core of a developing or established, diversified investment portfolio and offer a stable return on investment.

Whilst direct property investments are a well-trodden path, there several additional routes into real estate investment – this article will explore some of the alternative property investment models open to you, as well as the pros and cons of Indirect Property Investments.

Investing in Property

For many UK investors, property offers a long term and stable investment that can deliver strong returns on investment.

Whilst this is indeed true for many, investors however require a certain degree of industry knowledge, skill and luck to realise their real estate goals. The UK has many property investors, landlords and professional developers but for some, the sector can appear crowded when considering their investment options.

There are in essence two forms of property development and investment – direct and indirect, with each option offering a fairly stable and safe future investment income model.

Indirect Property Investments Explained

In short an Indirect Property Investment (IPI) is an investment in the stocks and shares of a company(s) that specialises in property and real estate, Real Estate Investment Trusts (REITs),  property index derivatives, or the bonds of larger corporate property entity.

In turn for an investment in any one of the structures as outlined above, the investor will then aim 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, bonds or shares.

It is worth stating that IPI’s are not simply a standalone investment but often form the basis of a wider direct and indirect property investment portfolio & helps to spread your real estate investment exposure.

It is also worth stating the even indirect property investment can carries a high liquidity risk and whilst it is less than a direct investment, an investor could still wait 6-12 months or more for a return of capital.

Direct Vs. Indirect Property Investments

IPI’s and direct property investments are not mutually exclusive and whilst growing in popularity, IPI’s are becoming a regular feature of many property-based investment portfolios.

One of the major advantages of IPI’s is that you can still support your wider direct property portfolio growth but a significantly lower outlay in investable funds. The other advantage is that there are no major day to day costs of setting up an indirect property investment portfolio as opposed the practicalities of expensive real estate development.

The Advantages of Indirect Property Investments

Indirect property investment has a number of advantages as opposed to direct property investment including:

  • Lower up-front capital investment
  • Reduction in management costs
  • Improved asset liquidity

IPI’s can be accessed by simply researching and sourcing stocks or property bonds directly via a reputable trading platform or via  a UK based trust company or Real Estate Investment Trust (REIT). Both UK based trust companies and REIT’s are fully approved by HMRC and are usually listed on the London Stock Exchange.

Many trust companies will also be offshored and are usually exempt from Capital Gains tax.

Indirect Property Investments provide a relatively low risk investment approach to expanding or consolidating your investment portfolio.

For more information please contact a member of our team to discuss IPI’s in more detail!

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