There are two ways you can invest in property:
- Directly – by buying a property as an investment
- Indirectly – by investing your money in a property fund
Buying a property for investment
You will need to have either a large sum of money, or you will have to borrow, to invest directly in property. There are two main ways you can get a return from property investment including:
- Rental income
- Capital growth if the value of the property rises
With property investment you are more vulnerable to potential risks, such as a downturn in the property market, particularly if your investment property is secured on your own home. But you may also face risks such as:
- Rental income may be less than you expected and is not guaranteed
- Increased mortgage repayments if you borrow money to buy the property and interest rates rise
- Falling property values, which could lead to negative equity
- Immediate access to your money may be difficult
- Selling the property may be difficult
- You may lose money if you are forced to sell the property quickly
- Difficulties in managing your investment property if you buy abroad
Investing in a property fund
You can also invest indirectly in property through a property fund. These funds typically invest in commercial, retail and industrial property.
If you invest in a property fund, you will pay tax and charges, including capital gains tax (CGT) on any profits you make from the sale of property – visit the Revenue website for the latest CGT rate. A property fund allows you access to the real estate sector without incurring the large cost of buying a property yourself.
There are two types of property funds – those where you can withdraw your investment at any time and those where you have to tie up you money for a minimum period, such as six years. Most property funds borrow to invest.
If you invest in a property fund make sure you read all the terms and conditions carefully. When you exit the fund, property funds often reserve the right to delay return of your investment for up to six months, to allow time to sell properties if needed.