If I had £100K to invest what would my number #1 question be?
For the best returns, how and where do I invest my £100K?
Essentially this is two questions, and the best approach is to seek the answer for these independently.
- How do I invest £100k to generate an income now?
- Where do I invest £100k for the best returns?
There are many markets, sectors and micro-sectors one can invest £100k into and get a great ROI.
The commonly known investments/sectors that have continued to provide a good, or even a great return are: Stocks & Shares, Oil & Gas, ETFs, ISA’s, Bonds, Funds, Real Estate, Loan Notes, REITs, Peer to Peer lending and Annuities.
For “best returns” it boils down to our own independent, specific criteria.
Are you OK with the volatility of Stocks and Shares? But, have historically shown an 8% – 10% average, over a 20-25-year cycle. Or, do you want to earn a fixed rental return, as a supplementary income to your salary to add to your pension pot and know exactly where you stand for the next 5-10 years.
Getting the right advice, doing your research and your own due diligence is key
If you are a beginner or going into a new sector that you have not invested in before, it’s important to seek the right guidance from the right company/advisor.
If you are open to advice, do a little research on the different markets and sectors that will be relevant to you, especially before calling an investment agent or IFA for the first time.
Consider listing down your foundation points that are personal to you. And it’s good groundwork, as this should all come up anyway in the initial conversations when seeking guidance on such a broad question.
The Property Market
The term “as safe as houses” we are all familiar with. Is it categorically true of the property investment market? I’m not in a position to answer that, but we do know, with not too deeper research, property since the 1960’s has tended to beat inflation about +2.8% p.a..
It’s provided many investors with sustainable, medium to high rental returns year-on-year, as well as capital growth, and a low-level of volatility compared to many markets of similar returns.
There are of course huge regional variations in property prices in the UK. The south, particularly the South East can cost double per square foot than that of a comparable property in the North West, and when it comes down to annual yield percentage, the return can be typically 2 – 4% lower in the south, especially London.
So, when asking how and where to invest £100k for the best returns, let’s look at two property investment sectors that are offering great return on investment.
1. Purpose-built Student Accommodation (PBSA)
Why invest in Student property for best returns
What do we love about UK PBSA?
First and foremost, the counter-cyclical nature of this investment. PBSA was one of the few asset classes to show resilience during the 2008 financial crisis and provided investors with robust returns.
PBSA provides full ownership, like any buy-to-let property the investor has full asset ownership of the property, which is registered at Land Registry by the conveyancing solicitor.
- No Stamp Duty to pay under £150k (even out of the current SDLT temporary holiday)
- Fully managed investment by a specialist management & letting company
- Many projects are ring-fenced to lessen the risk, especially in the off-plan, build phase
- High rental returns are not hard to come by – 7%, 8%, 9% even 10% net rental yield per year
- Rental return in most cases, if not all, is assured (contractually) for the investor by the developer for the first three to five years from project completion.
Where to invest in Student property
- Be diligent about the university or universities – there are many higher education institutions in need of a government bailout – as the UK heads towards an imminent recession.
- Look at universities for specialist areas/facilities like Medical schools and engineering – this attracts the ideal overseas tenant for PBSA.
- Buy where there is a good percentage of overseas students verses domestic students.
- Be diligent about the student numbers overall and the undersupply ratio in the university town or city.
If buying off-plan;
- Buy where the project will finish in time for the 2021/22 in-take.
- Carry out extra due diligence on the financial structure offered by the developer, we don’t expect projects to become all of a sudden unviable due to pandemic, but we can easily see where not to buy PBSA.
If buying stock already completed or completing Q4 2020;
Buy where the assured rental return is sustainable and does not appear too high. For example, if you are being offered 10% net assured and the PBSA is not literally on/next to the campus, or, it’s not in a second or third tier city where land is much cheaper – dig a bit deeper!
Buy where the developer has a clear contingency plan for any assured rental return shortfall – this is normal in the first year anyway – but even more important going into the 2020/21 academic year.
How to invest £100k into student property
To ensure you are getting the best returns and because student accommodation (PBSA) developers use specialist investment agents and brokers, the safest bet is to speak to a PBSA investment expert, as they will supply all the information you require, covering deep due diligence such as:
- Developer Check
- Project Suitability
- Project Details
- Management & lettings
- Location review
- Solicitor & contracts
- Site visit and meet the developer
2. Residential property investment
Why invest in residential property for best returns
What do we love about UK Residential buy to let?
It’s a tangible asset, resilient and typically low volatility, even in times of economic downturn.
Currently there is no better time to buy a residential property with the SDLT temporary holiday – 2nd home buyers/ buy to let investors still have the 3% surcharge, but on the higher £500k threshold. So still savings to be made.
- There are many buy to let options that provide a hands-off, passive income.
- Your property is fully managed, by a specialist management & letting company.
- Many projects are ring-fenced to lessen the risk, especially in the off-plan, build phase.
- Some projects, when off-plan, offer a full deposit protection product up to 30%.
- High rental returns – 4% – 7% projected net rental yield per year on long-term lets.
- A new-ish rental concept for retail investors to maximise income is the Short-term let model, where annual rental returns in most cases are +10%.
Where to invest in residential property
When deciding where to invest in residential buy to let there are a few things to be mindful off to ensure best returns.
- Capital growth on the outskirts of certain major cities, can benefit you for huge returns.
- Look for regeneration areas and high-speed rail links, such as the HS2, which will benefit many cities over the next decade.
- Projects where you can have the best of both rental-income worlds; long-term lets (AST) and Short-term lets. This gives you a return of say 5% to +10% depending what you choose.
- The beauty of £100,000 means you could leverage your capital and buy two properties with a £50,000 deposit and apply for two mortgages for the remaining balance (up to 75%-80% LTV on a buy to let mortgage)
How to invest £100k into Residential property
To ensure you are getting the best returns from Residential buy to let talk to an investment specialist about your options, following your specific criteria. They will supply all the information you require, including deep due diligence, on the best option for you.
3. Best return alternative investment option
Secured Property Loan Notes
If the appetite for investment is specifically short-term with a guaranteed exit, non-asset ownership, moderate risk then the following option should be a consideration.
Loan Notes’s are typically a 2-year term that are secured by property or assets. Net return of 10% p.a. or 12% p.a. with bi-annual or deferred-end-of-term payment, respectively. It’s worth noting and being careful of unsecured loan notes that naturally offer a higher return with a higher risk on capital.