Retirement: ‘Alternative’ ways to invest into property for a comfortable retirement
The idea of investing in a buy-to-let is not as enticing as it once was due to tax implications, and tighter regulations attached to them. As a person wanting to invest to ensure a comfortable retirement, it’s important to understand the changes in the market, and within the real estate sector to be able to adapt and benefit financially.
The idea of investing in a buy-to-let is not as enticing as it once was due to tax implications, and tighter regulations attached to them. As a person wanting to invest to ensure a comfortable retirement, it’s important to understand the changes in the market, and within the real estate sector to be able to adapt and benefit financially. If you are planning to buy a property specifically in Durham, check out property management in Durham and see its services.
The biggest change is the use of technology for making investments.
People would usually buy the whole property whereas now technology enables fractional ownership – this means people can invest smaller amounts in lots of different real estate investments.
In an exclusive interview with Express.co.uk, Jatin Ondhia, co-founder and CEO of Shojin Property Partners provided insight into the alternative ways that people can invest into real estate and what digital property investment actually entails.
He said: “When people think of retail investments, they think of buy-to-let investing, but actually there’s a huge spectrum of investments there. You can lend money to people who are looking to acquire a development site, they might need a bridge loan for a while until they get their development funding sorted out.
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“Or you might actually want to invest in a retail development project whereby you share the profits on that project and there are all sorts of ways in between as well. Buying an asset is only one small part of it.
“So, what a lot of online platforms are now enabling is for investors to access all these different parts of the market, and different platforms specialise in different areas.
“Some online platforms may focus on buying one asset, like student accommodation blocks and then you own a fractional share in that, you get the benefits of the running income in terms of the rental income. But you also benefit from the capital growth, but as you look into the real estate sector more, you see all these other opportunities.
”When looking at real estate investments, Britons needs to understand that it is not the ‘bog standard’ liquid investment that one may get from pensions, or bonds.
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However, it can provide a safer investment compared to cryptocurrencies Mr Odiha explained.
But before investing into anything Britons need to do their own research and speak to financial advisors if they are unsure as everyone’s situation is different.
Mr Ondhia went on to explain what kind of opportunities are available in the real estate sector that people can decide to invest in.
He said: “Senior lending is a good opportunity. It’s first charge lending for example like a bridge loan or something equivalent.
“This is where developers might need money for a short period but because you’re on a first charge security with that with that asset, it’s a very low risk product and you can earn anything from say six to nine percent per annum on something like that.
“But as you move further up the spectrum, you can have things like mezzanine loans to real estate developers.
“Mezzanine loans are basically where if a developer needs £10 million for a project, they might have six million from a bank who is lending them the senior funding and the developer would traditionally be expected to put in the four million, but as developers grow their business like any business entrepreneur they need extra capital so they might have one million to put in but that leaves a three million funding gap in the middle.
“That’s called mezzanine. So that’s the bit that investors could invest into, and mezzanine typically returns like a fixed return, somewhere between 14 and 16 percent per annum, but it’s on a second charge basis so you sit directly behind the bank that’s doing the senior funding.”
The reason there are higher returns within property fractional investment is due to the lack of liquidity.
Unlike the liquid equity markets or the bond markets where money flows back and forth constantly, with digital investments, it takes a while for a developer to get their funding due to the amount of due diligence undertaken by bigger companies looking to get involved.
“An investor going in should recognise that their money is going to be tied up for the full duration of the project and possibly even a bit longer,” he warned.
Mr Ondhia gave Express.co.uk readers his golden rule when it comes to investing. He explained that the only time a person should invest is if losing the money would not cause them any trouble.
He added: “With that in mind, still be sensible with the way you distribute it and make sure you understand all the risks. It’s important that people understand the project, understand the risks and understand the timeline. Certainly, you can do trial investment with smaller amounts. Never put all your eggs in one basket and put smaller amounts in until you get comfortable with the way the firm works.
“This gives everyone the chance to invest but on a smaller fractional basis, dip their toe and see how they like it before deciding to do anymore.”
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