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Should You Invest In Property Indirectly?

Peter Hemple looks at alternative ways of investing in UK housing

As the saying goes, 'Hindsight is a wonderful thing'. The Oxford Dictionary defines hindsight as 'an understanding of a situation or event only after it has happened or developed'. Well, less than seven years ago, when the Bank of England reduced the base rate by 0.25% to 5.50%, virtually no-one predicted that just 15 months later, by early-2009, they would be slashed to 0.50% after the worst financial crisis in living memory. Even if there were a couple of economic geniuses that did make such a prediction, they would never have predicted that base rates in the UK would still be at 0.50% more than five years later.

So, given the chance to go back and do it all again, knowing what we know now, what would you do differently? What would you invest in? Some of you might choose to sell your UK property portfolio at the peak in Q3 2007 and buy property in London when it reached the bottom of the downturn in Q1 2009. That would indeed be a shrewd investment. In the 5.5 years since then, London property has increased by 66%. However, if we assume that back in 2009, you were one of the lucky few that were still able to get a 70% LTV buy to let (BTL) mortgage, and for simplicity, let's assume that the small net monthly rental profit since then has managed to repay your stamp duty and buying costs, then your actual return on investment (ROI) before capital gains tax and selling fees would be +220% since Q1 2009, (£166k selling price less £70k mortgage = £96k profit/£30k deposit = £320k).

Anyone, even Warren Buffett, would be delighted if they could more than treble their money every 5-6 years. However, these returns are small fry compared to the money you could have earned had you bought shares in property/real estate companies at the bottom of their downturn.

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