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COLUMN: Property funds for the smaller investor

David Hill INLT 45-099-PSB

David Hill INLT 45-099-PSB

If you are thinking of investing money for the future, then a balanced investment portfolio which contains a range of assets other than shares should be considered in order to reduce risk.

One of these asset classes is commercial property. You don’t need to have large sums of money to access the investment property market. It is possible to invest small amounts of money in a property fund along with thousands of other investors, with the combined total buying a variety of different commercial properties.

A good property fund will contain a mixture of retail units, shopping centres, office blocks and industrial warehouses, with some funds even including leisure properties. They provide good diversification from shares as the rental income provides a steady return for investors, with the possibility of capital growth as the value of the properties increase. These funds can be held inside pensions, ISAs, bonds or as a normal investment account.

Some property funds, known as Property Authorised Investment Funds, are able to structure themselves in such a way that the rental income is effectively tax-free within an ISA or a pension fund and non-taxpayers can reclaim the income tax paid on the rent.

There are risks associated with property investing that shouldn’t be ignored. Firstly, the vacancy rate on the property fund should be considered. This is the percentage of properties in the portfolio that do not currently have a tenant. A high rate will have a damaging effect on the rental income.

Secondly, property can sometimes be difficult to sell and fund managers reserve the right to delay paying investors their money under poor market conditions.

Thirdly, as we have seen in the last eight years, the capital values of properties can fall sharply and significantly.

Provided investors are comfortable with these risks, commercial property funds offer a simple and low-cost way to access a wide range of property with relatively small sums of money.

David Hill is a Chartered Financial Planner and Independent Financial Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: david@hillsfinancialplanning.co.uk

 

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