The COVID-19 pandemic - which brought interest rates to rock-bottom and caused severe stock market fluctuations - is a prime example of why a diversified investment portfolio is crucial when looking to minimise risk and maximise returns.
Holding a range of asset types in a mix of geographies is important, because if one performs poorly, the full value of your portfolio is not affected.
During the early stages of government restrictions introduced in response to the current pandemic, uncertainty had a detrimental impact on most sectors.
But one sector that has proven to be somewhat resilient throughout the crisis is property, and property could be a great addition to a balanced and diversified portfolio.
As an investor considering adding the popular and potentially high-yielding asset to your portfolio, here are five things you need to know about diversifying with property.
1. There are multiple methods of investing into property
When thinking about investing into residential property in particular, buy-to-let will be the first thing on most people’s minds.
Purchasing a property for the purpose of renting is one of the most common methods of investment into the sector, but it certainly isn’t the only one - and, with recent cuts to tax relief and increased costs, it’s popularity could be declining.
The property-backed IFISA is an alternative investment that enables high-quality regional house builders to raise funds for the development of much-needed new-build housing, while investors receive potential tax-free returns of between 4% and 8%.
2. You can invest into property in a passive, hands-off manner
Investing into property doesn’t have to be time consuming.
Investing via a property-backed IFISA means you can get on with your life, and let the experts handle the development of the properties that are generating your potential returns.
Most investors choose to add property to their portfolio because it meets their requirements, and is appropriate for their personal circumstances. But most do not have the prior knowledge or experience necessary to build bricks and mortar.
And when investing into buy-to-let, investors must be prepared to deal with the day-to-day maintenance of owning and renting a property, which can often require time and attention that busy professionals don’t have.
3. Investing into property doesn't have to be eye-wateringly expensive
Another difference between investing into buy-to-let and investing into a property-backed IFISA is the expense.
Typically, both the upfront and ongoing costs associated with buy-to-let are extremely high. There are mortgage costs - from an initial deposit, to ongoing payments - maintenance costs, and the cost of stamp duty to name a few.
As well as this, the government has recently ended mortgage interest tax relief, and made other changes to taxation that could negatively impact the profitability of some landlords’ portfolios.
On the other hand, the property-backed IFISA can often offer low minimum investment amounts, with no ongoing fees whatsoever.
For example, investors can invest into the CARLTON Bonds IFISA for as little as £1,000, and will never be charged a fee.
4. With a property-backed IFISA, you can invest into property tax-free
The IFISA was introduced in April 2016 by the UK government, and it joined the already established - and hugely popular - ISA family.
With an IFISA, investors are able to hold peer-to-peer loans and debt-based securities without paying any income tax or capital gains tax on returns, making it a great way to potentially maximise returns.
5. You can invest for impact with property
Many investors are, now more than ever, looking for ways to invest in a way that makes a positive difference on a social, economic or environmental level.
Due to the UK’s ongoing, chronic housing shortage, investing into property has long been considered an impact investment.
The property-backed IFISA provides alternative finance to regional house builders who are able to tackle the crisis head-on, building high-quality, affordable housing at a time when it’s needed the most.
But in the wake of COVID-19, supporting regional house builders is more important than ever.
The housing market plays a crucial role in the UK economy’s bounce-back from Coronavirus-related financial implications.
Through the alternative finance provided by the property-backed IFISA, regional house builders are able to continue building much-needed housing, while also employing innovative methods of construction, providing local jobs, and regenerating communities.
The CARLTON Bonds product is available exclusively to experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).