The quicksand of real estate investing that promises to save further

For years, dating back to the Middle Ages, real estate has been a popular way to build and preserve heritage. Merchants bought, sold and rented houses on the lands of their feudal lords.

However, to operate at institutional-grade opportunities, investors had to be among the top 1% of the world’s population. At any level, a moderate to considerable amount of capital is required to become an owner capable of generating significant returns.

Fortunately for investors, the market is constantly changing and there are other ways to invest in real estate that are open to everyone. The idea of ​​investing in a buy-to-let is no longer as appealing as it once was due to the tax implications and stricter regulations that come with it. People would typically buy the entire property as technology now allows fractional ownership – this means people can invest smaller sums in a number of different property investments.

In the buy-to-let space, we have seen rental yields erode over the past decade, despite recent increases, peaking at 5.5% on average in Britain in Q4 2021. that the fact that regulation is also against landlords, with tax breaks for rental mortgages being relegated to the history books and the picture is starting to look bleak. While adverse regulatory changes have been a thorn in the side of those seeking investment opportunities in real estate property, the COVID-19 pandemic has only accelerated the decision of many landlords to start liquidate part or all of their real estate portfolios.

In Lloyds’ annual survey of city bosses, businesses in the city are optimistic about London’s future as a global financial centre. More than two-thirds of financial institutions believe cutting EU red tape will reassert London as a global center for commerce and finance as businesses anticipate and adapt to the new regulatory environment.

It seems likely that UK property investment as a whole will benefit from a post-COVID, and arguably post-Brexit, rebound as the market is poised for significant digital disruption. This is where new alternative ways of investing in real estate will gain momentum. To give you an idea of ​​the opportunity, the online real estate investment market is expected to grow from $15 billion to $800 billion by 2027.

When people think of commercial property investments, they think of buy-to-let investment, but in reality there is a wide range of investments. For example, you could invest in a development project whose profits are shared among several investors. The purchase of a property is only a small part of its real estate investment. What many online platforms now allow investors to access all these different parts of the market with a plethora of funding options.

These can include your money invested in development equity, mezzanine loans, bridge loans and the provision of asset finance where the risk/reward ratio will vary, depending on your investor appetite. In these scenarios, the investment opportunities extend far beyond the traditional buy-to-let concept, which is naturally more limited and dependent on market growth or contraction.

When considering real estate investments, individuals should understand that it is not the simple cash investment that one can get from pensions or bonds, but can provide a safer investment compared to d other alternative investment opportunities such as cryptocurrencies. Real estate is seen as a particularly useful asset class, especially for people looking to diversify. Indeed, real estate is mostly decoupled from the stock market, which makes it relatively immune to market fluctuations.

With the advent of digital investing through online platforms, direct investing is becoming increasingly important. Naturally, you have the platforms that allow investing in stocks and bonds, but now you have platforms that also allow split investments in opportunities they were previously excluded from. This includes real estate, private loans, development stocks, pre-IPO and all sorts of other investments. These platforms also enable disintermediation, so investors can invest directly in companies and opportunities without layers of middlemen, and they can keep a larger share of the profits.

It is this portfolio diversification that can really grow an individual’s savings and the advancement of technology will continue to create new and better investment opportunities. For the past 40 years, investors have relied on traditional fund managers to manage their investments, both in savings and retirement. Unfortunately, investors were disappointed.

While the majority of actively managed funds underperform the market, there are many layers of fees, and fund managers are always well compensated while the investor loses. I see a better future, in which investors will have fully diversified, self-managed portfolios with investments that reflect their own market views and many of these investments will be in the form of direct investments, giving investors full control.