Investing in Property

Roland_Flagg · 25 January 2016 at 11:58AM

I'd like to invest a small amount in property but do not want the hassle of being a landlord. So is it a choice between a Property fund, such as a Aberdeen fund via H&L or a Crowdfunding site such as Property Moose?

Any other options?

Thanks.

xylophone · 25 January 2016 at 12:06PM

You could also consider a REIT.

http://www.bpf.org.uk/reits-and-property-companies

Linton · 25 January 2016 at 12:18PM

There are two type of property fund - directly and indirect. Direct funds actually own commercial buildings and so your return follows the success/failure of specific properties. Indirect funds invest in the shares of companies that own property, Such funds are therefore subject to the general short and long term movements of the stock market as a whole. The only way of finding out whether a specific property fund is direct or indirect is to look at the details of the fund. You need to do see precisely which property your chosen direct fund invests in. Some invest in London office blocks, others may choose regional city centre shopping malls or foreign property. So it depends where your interest lies.

bowlhead99 · 25 January 2016 at 12:24PM

They invest in very different things.

The Aberdeen Property Share fund invests in shares of property companies like Land Securities, Great Portland Estates, Helical Bar. Their £500m fund is invested to buy stakes across lots of these companies which are worth billions altogether. The property companies typically invest in portfolios of commercial properties like office blocks, retail malls, warehouse space, retirement homes, which can be valued in the many millions and will earn money from the businesses that pay them to use the property. The value of shares in the property companies and therefore the value of the fund, will go up and down with the stockmarkets and commercial property markets. If you want to get your money back you can redeem out any day you like and they will sell some underlying shares and pay you. Of course, it may be less than what you paid depending on state of the economy.

Crowdsourced (p2p BTL) property funding investments like Property Moose give you access to residential buy-to-let which is a different market altogether from commercial property. They put investors together to own a share of a house, take some pretty big fees off your initial investment and your ongoing income, and plan to exit the property and get money back for the investors at the end of the term (assuming the property can actually be sold for a reasonable value and the investors don't vote to extend the term). If you want to get out before the property is sold, you'll take a haircut on what the investment is valued at because they can't practically sell one room of a house to get your money out.

A third alternative is commercial property funds which invest directly in commercial property rather than in the shares of property businesses. As they are holding physical land and buildings directly, the value of the fund is less tied to the movements in the stockmarkets which move the share prices of property companies so significantly, and they are a decent diversifier for someone who already has stockmarket investments. Example, L&G one here http://www.fundslibrary.co.uk/fundslibrary.dataretrieval/documents.aspx?user=landgdoc&type=custom_field.www_landg_co_uk.factsheet_UTD&sedol=BK35DS0

Property funds and property share funds or REITs mentioned above, can all be held inside ISAs and pensions and be quite tax efficient. Crowdsourced peer to peer investments can't be.

Roland_Flagg · 25 January 2016 at 12:27PM

Thanks for the info.
So say I want to invest a lump sum of £2-5K, or a monthly drip feed of say £200, what would be the best option, looking for medium risk with potential of 8% return or more?

Linton · 25 January 2016 at 1:01PM

8% is optimistic though could well happen some years. The best property funds have averaged 5%/year over the past 10 years. The worst have made a loss.

Direct property funds are less risky in the sense of being much less volatile. However in the bad years they will make a capital loss. Suggest you look on https://www.trustnet.com and select the Property sector to get some idea of typical returns. The direct funds will be those with a low "FE Risk Score". Also worth looking at Investment Trusts - trustnet has a section with direct, indirect and foreign property funds categorised separately.

InvestInPoker · 25 January 2016 at 2:25PM

Linton wrote: »

Direct property funds are less risky in the sense of being much less volatile. However in the bad years they will make a capital loss

I agree with this. Would also add that direct funds will be less correlated to other stock mark investments than indirect funds. However there will still be significant correlation.

One downfall of direct funds in my mind is the amount of cash they have to hold (cash is always a drag on returns). If a big investor wants to pull out its easy to sell a lot of shares, but its not so easy to sell 1/16th of a retail park in birmingham. Therefore to allow liquidity in withdrawals direct property funds must hold a lot of cash. Well either that or limit withdrawals during downturns (like the global financial crisis).

InvestInPoker · 25 January 2016 at 2:29PM

I use an indirect passive fund, the blackrock global property tracker. I bought in via a share class which had a 0.5% bid spread, not great but looked a perfect fund for what I wanted so I took it and have been happy with it so far.

Sadly now it appears I cannot add any more money into the class with the small bid spread nor can I start a new investment in it. I can only find a new class, which has a horrendous 5% bid spread on it. This sucks.

bowlhead99 · 25 January 2016 at 3:00PM

I'm not in that particular fund, but isn't that spread between the official bid and offer prices just reflective of the manager's 5% initial charge which would be discounted away to zero by most investment platforms?

Or have they soft-closed it because it's too big to effectively invest? As they're just investing in global equities and are only a billion in size, that seems maybe unlikely?

redux · 25 January 2016 at 3:13PM

Something else I've seen is a fund investing in leases and ground rents.

It may turn out to be a bit less volatile than direct property values, steady rather than spectacular, but I haven't looked at it enough yet. 5% declared annual return target, always exceeded.

Not available through online brokers though, only via financial advisers they say, which would probably preclude a modest taster investment, but if you're thinking of a larger amount and consulting an adviser anyway ...

InvestInPoker · 25 January 2016 at 3:32PM

bowlhead99 wrote: »

I'm not in that particular fund, but isn't that spread between the official bid and offer prices just reflective of the manager's 5% initial charge which would be discounted away to zero by most investment platforms?

Or have they soft-closed it because it's too big to effectively invest? As they're just investing in global equities and are only a billion in size, that seems maybe unlikely?

I think they are just being greedy.

The old class I could access was

"BlackRock Global Property Sec Eq Tracker Class D Acc"

Today it says Buy price 1.504, Sell price 1.501

Initial charges are listed as nothing. When I first bought into this fund my initial holding was worth very slightly less than what I paid, 0.2% or whatever the actual spread is. Not ideal but seemed a low charge to access a great fund.

However I cannot start a new investment in this fund anymore, nor can I top up my existing holding.

What I can do now is invest via this class

"BlackRock Global Property Secs Eq Tracker Fund Class H Acc"

Today it says Buy price 1.134 Sell Price 1.078 (ouch!)

Initial charges are listed as nothing, but of course you will get ripped for 5% right off the bat - which is greedy on their part and to be avoided.

It appears to be exactly the same fund as the D class, same holdings etc. The difference is in the bid spread. I don't believe this fund was soft closed as it got too big or for any other reason. I believe they just slapped that spread on it out of greed.

Being fair it is by far and away the best indirect property fund that I could find when I allocated a portion of my portfolio to it a few years ago. There does not seem to be any good competition for it hence the charges now to access. Hurts I cannot top it up now though, nor can I bed and isa it.

Investing in Property

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