One of the main problems with being a buy-to-let landlord is that it’s incredibly hard for small investors to diversify. You wouldn’t dream of putting all your money into one share, yet amateur landlords frequently have just one or two properties, often in the same area. So the idea of a fund that spreads your risk over a range of properties and takes care of all the other hassles a landlord faces is attractive.
That’s what the TM Hearthstone UK Residential Property Fund sets out to do. By buying houses in areas with strong rental demand, it aims to match or exceed the average increase in British house prices. Managers say they’ll be able to use the fund’s size and its cash-buyer status to negotiate discounts on properties. The minimum investment is £1,000, with an annual fee of 1.5%, although for those investing more than £20,000 this can be cut to 0.75%.
Another, more focused, fund comes from property investment group London Central Portfolio Ltd. The London Central Apartments fund invests in upmarket flats in areas such as Mayfair and Chelsea, to let to ‘blue-chip’ tenants. Previous funds, launched in 2007 and 2010, have enjoyed capital growth of 35% and 34% respectively.
These funds are certainly a more convenient and less risky way to get exposure to the British housing market than setting up your own property portfolio (you might lose all your money, but you can’t go into negative equity). But is now the right time to invest in British houses at all?
With property values outside London still falling in many areas, you need to get a decent rental yield to make it worth your while. The yield on the Hearthstone fund isn’t confirmed, but what with an annual charge of 1.5% to pay out of that, it’s hard to see it reaching the sort of level we’d want to get to compensate for the risk of capital values falling further.
As for property in central London, while the market has done well, we suspect it’s past its best. A key factor propping up the market has been the rush of money fleeing the eurozone. If that reverses, demand could dive. Growing populist attacks on the ‘rich’ – as per Nick Clegg’s latest headline-grabbing call for an ‘emergency’ wealth tax – are also likely to take some of the shine off London’s appeal.
So, if you want to invest in property, we think you’d be better off with a real-estate investment trust (Reit) with a proven track record and a high yield. My colleague Phil Oakley looks at such a Reit: A property firm that inspires confidence.