How to Invest in Property Without Buying a House

Roberto Rivero

To many people, investing in property may seem like a nice idea, but with the average house price in the UK more than £250,000 - buying an investment property is not feasible for most people. 

But what if we were to tell you that you didn’t need to buy a house in order to invest in real estate? In this article, we will explain how to invest in property without buying a house, why people invest in property and demonstrate how to start investing in property with Admirals.

Why Invest in Property?

Whilst investors may have differing opinions about a lot of things, one thing that every successful investor will tell you is the importance of diversification.

Holding a variety of different assets helps reduces your risk by minimising your reliance on any one asset or market. Therefore, a potential setback in one investment will not jeopardise your entire portfolio and can hopefully be compensated for elsewhere.

Investing in property can be a good option for diversifying your portfolio, as the property market tends to perform differently to other major asset classes.

Another reason to invest in property is that, historically, it has tended to be a good hedge against inflation. When inflation rises the value of many assets - including cash, most bonds and some shares - will tend to move down or won’t keep up with inflation. By contrast, property values have historically performed well in an inflationary environment.

Risks of Investing in Property

Nevertheless, although property investment can provide diversification to a portfolio, there are risks of investing in property. Before investing in real estate, it is important to thoroughly evaluate the investment in question and make sure that it aligns with your investment profile and objectives.

As with any asset, property prices can move in both directions, and one factor which might weigh on property prices in the coming months is interest rates. After more than a decade of record low borrowing costs, interest rates have risen quickly and the cost of borrowing is significantly higher than it was a couple of years ago.

It is possible that the higher cost of borrowing will cause demand for property to fall, as buyers are deterred by higher mortgage rates. As with any asset, a fall in demand for property would cause property prices to fall.

How to Invest in Property Without Buying a House

Fortunately, for those interested in gaining exposure to the property market, there are various ways to invest in property without buying a house. In the following sections, we will explore several of the most common ways to invest in property online.

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Property Stocks

For those wanting to invest in real estate, property stocks offer an opportunity to invest directly in companies which operate in the industry. Naturally, when the property market is performing well, companies which operate in the sector will also tend to perform well.

Housebuilding companies and estate agents are both examples of property stocks which can provide exposure to the property market.

Below we can see a price chart for property stock Taylor Wimpey, a British housebuilding company which is also currently one of the highest yielding real estate dividend stocks in the UK.

REITs

Using a pool of investor money, Real Estate Investment Trusts (REITs) acquire or develop, and usually manage, various income generating properties, such as apartment buildings, offices, shopping centres and hotels.

REITs allow their investors to enjoy some of the benefits of investing in income property without the headaches associated with buying or managing the properties themselves.

REITs are listed on stock exchanges where their shares are bought and sold, exactly like those of any public company. In fact, despite having the word “trust” in its name, a REIT is actually a company, but one which enjoys special tax treatment.

In exchange for favourable tax treatment, UK REITs must distribute 90% of their tax-exempt profit to shareholders in the form of a dividend. Therefore, REITs can be a good income investment, as shareholders are guaranteed a dividend provided the REIT’s property rental business is making profit.

Below is a weekly chart for Tritax Big Box REIT, a UK REIT which owns and manages a portfolio of large logistics facilities which it rents out to clients who include Amazon, Tesco and Ocado. At the time of writing, the REIT has a dividend yield of 5%.

Depicted: Admirals MetaTrader 5Tritax Big Box REIT Weekly Chart. Date Range: 22 January 2017 – 25 July 2023. Date Captured: 25 July 2023. Past performance is not a reliable indicator of future results.

Property ETFs

You may already be familiar with Exchange-Traded Funds (ETFs) but you may not have realised that some ETFs specifically focus on investing in property.

Property ETFs, or real estate ETFs, use a pool of investor capital to invest in property related securities and can be either actively or passively managed.

However, more often than not, property ETFs are passively managed. In other words, they are designed to track an underlying index and do not tend to directly invest in physical property but instead hold REITs, shares in real estate companies or bonds. 

Property ETFs are listed on stock exchanges and, just like shares, are bought and sold throughout the trading day. Unlike buying REITs or property stocks, property ETFs offer investors instant diversification across a number of securities with a single investment. This way, your exposure to the property market is not limited to one company, but spread over many.

An example of a property ETF is the iShares Developed Markets Property Yield ETF which is designed to track an index composed of real estate stocks and REITs from developed countries.

Depicted: Admirals MetaTrader 5 – iShares Developed Markets Property Yield UCITS ETF Daily Chart. Date Range: 9 July 2018 – 25 July 2023. Date Captured: 25 July 2023. Past performance is not a reliable indicator of future results.

How to Start Investing in Property

An investing account from Admirals allows you to invest in property online via REITs, real estate stocks and property ETFs! In order to learn how to start investing in property, follow these steps:

  1. Open an Invest.MT5 account and log in to the Dashboard
  2. Find your account details and click ‘Invest’ to open the Admirals Platform
  3. Search for the property investment you wish to make and open the instrument page
  4. Enter the number of property shares you wish to purchase and click ‘Buy’ to send your order to the market!
Depicted: Admirals Platform - Taylor Wimpey PLC. Date Captured: 25 July 2023. Past performance is not a reliable indicator of future results.

Final Thoughts

Investing in property does not necessarily mean spending hundreds of thousands of pounds on a house and hopefully you are now more familiar with some of the alternative options available to investors who are feeling confident about the property sector.

Property stocks, REITs and property ETFs can all provide exposure to this market as well as diversification for your investment portfolio. However, as with any investment, all of these instruments carry a significant level of risk. It is always important to do your own research before making any investment decisions.

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Investing in Real Estate – FAQ

Should I Invest in Property?

There are a number of reasons as to why people invest in property - including portfolio diversification, hedging against inflation and for income potential. Nevertheless, before investing in real estate, or anything for that matter, it is important to do your own research, to evaluate the risks involved and to establish whether the investment is suitable for you and your goals.

How Much Do I Need to Invest in Property?

The answer to this depends on how you intend to invest in property. If buying physical real estate, you will need to have access to a considerable amount of capital. However, with fractional shares, it is possible to start investing in property stocks, Real Estate Investment Trusts (REITs) and property ETFs with as little as $1.

How to Invest in Commercial Property?

Besides buying physical property, it is possible to invest in commercial property by buying shares in companies which operate in the industry, buying shares in Real Estate Investment Trusts (REITs) or by investing in funds with exposure to commercial property.

About Admirals

Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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