Buy-to-Let Property Investments – Is There Another Choice?

There’s no doubt that property investments, such as buy-to-let, have grown in popularity in recent years.

But it’s important to consider the positives and negatives as well as researching alternatives if you’re thinking of jumping into this.

First, a word on the rise and rise of residential property investing: the buy-to-let sector has grown again over the past year, accounting for 11.5% of total gross mortgage lending in 2012, up from 9.8% in 2011, according to the Council of Mortgage Lenders (CML).

Figures last summer from the Royal Institution of Chartered Surveyors (RICS) indicated that rents had risen by more than 4% over the previous year. It also believed the rise would be roughly the same in the following 12 months up to summer 2013.

If you choose to invest in buy-to-let, not only will you receive rental income but over the long term it is likely you would expect to make a capital return on your investment. Even with most analysts predicting slow house price growth over the next few years, when you take into account the rent you will receive, the returns look promising.

A report in 2012 showed that property investment has a 5.2% average yield. Property investment is therefore predicted to have higher returns than cash savings (3.24% yield) and than investing in FTSE 100 shares (4.4% dividend yield).

However, what this fails to acknowledge is the costs involved in maintaining and managing the property and the rent lost when the property is vacant, although the costs don’t disappear. We believe the leakage in buy-to-let property amounts to roughly 3.7% a year. Deduct this from the 5.2% and you are looking at a mere 1.7% yield after tax, transaction fees and annual costs.

And the alternative?

At Castle Trust, our HouSAs offer you an alternative to going through the trouble of buying an actual property.  Not only this but they will provide better returns than UK house prices, as measured by the Halifax House Price Index whether house prices rise or fall.  With an Income HouSA, you receive an income of between 2% and 3% a year, depending on your chosen term, in case you would miss the rental income.

There is no need for a large deposit – you can invest from as little as £1,000 and this can be made tax-efficient with an ISA or SIPP. There is no time wasted and no costs involved in maintaining and managing a property – and you don’t need to worry about what your tenants are doing to the property.

So whether you are saving for your child’s future or looking to save for a deposit for a home, a Castle Trust  HouSA is a great alternative to buy-to-let.

[]By Mikkel Bates, Head of Marketing, Castle Trust[]

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