Best Way To Invest Money In Properties

If buy-to-let sounds like too much hassle or you don't have the money for the hefty deposit and other upfront costs, there is another way of investing in the property market.

What are property funds?

Property funds rely on expert fund managers to buy up properties, and then pass on the income and capital growth to the investors who put their money into those funds.

While most property funds invest in commercial property, such as retail parks and office blocks, there are some that are more focused on the residential sector.

Whichever you choose, ensure that it is authorised and regulated by the Financial Conduct Authority, which is the UK's financial regulator.

Types of property funds

Some property funds are known as closed-ended funds.
- listed on the stock market
- known as REITs (real estate investment trusts)
- you buy and sell these like any other share, such as a share in Tesco or Rolls-Royce

Other property funds are open ended
- they issue new units when more people want to invest
- price of these funds move up and down depending on:
  - popularity of the fund
  - underlying value of the properties it is invested in

What are the benefits of investing in a property fund?

Easier to buy and sell than it is to market and sell a buy-to-let when you need some extra cash
More diversity. Your money is typically invested in a more diverse set of property types in different areas.
You can check the performance of a fund or REIT by using a factsheet, available from the fund's own website, or from services like Morningstar. Also look at the fees, as these will eat into any return.

The performance will reflect the wider property market, but also the skills of the fund manager in making the right decisions at the right time about when to buy and sell the properties.

Why is diversification important?

If you are investing in property, ensure that you do so as part of a portfolio of different types of investment. This better protects you if the market enters a rocky patch or prices slump.

Diversifying is also important because property funds can suspend trading and freeze their assets, meaning investors will not be able to withdraw their money.

This occurs when a surge of investors try and sell their holdings and the fund is unable to sell properties quickly enough to repay them.

You can hold property funds in an ISA or a pension, which means you can benefit from tax breaks on your investments. You cannot do the same with your own portfolio of buy-to-let properties, which is also something to bear in mind.