Direct Versus Indirect Property Investment


When one considers the low, single-digit returns that have been common during the past decade, many investors are looking long and hard at alternative investments such as real estate. Here are some of the many different ways to invest in real estate

Indirect property investment is when a person or persons invest in a product that then invests in property. That means they are not investing directly in the property themselves. This can consist of investing in a product whose performance is based on – to a degree – some measure of property performance. Some examples include, buying units in a property fund, making payments to a pension plan with property within its portfolio and purchasing shares in a publicly quoted property company.

Direct and Indirect Investment. What are the differences?

Direct investment in a property describes when you purchase the whole or a part of a physical property. As a process, this is not as simple or fast as investing in equities or bonds, as it necessitates more time and even more capital.

As an owner of property, you will receive rent directly from your tenant, and you can realize gains or losses from the eventual sale of that property. As a landlord, you also have additional obligations for the management of said property. Some of these necessitate specific and specialized knowledge, such as that possessed by a chartered surveyor.

Indirect property investment comprises investing in the skills and knowledge of other people, such as that of property or fund managers. There are myriad different ways of investing in property indirectly. One of the most typical routes into the property market, especially for commercial property, is through shared investment schemes, such as property funds, where investors’ funds are grouped together.

Investors must be aware that making ancillary investments is likely to result in the performance of their investment vehicle not being wholly related to the performance of the property or properties confined within the vehicle. Furthermore, the tax handling of indirect investment vehicles could be an issue. You need to be cognizant of the risks involved, and you should continually seek financial advice where needed.

Final Thoughts

It should be stated that the most obvious way to invest in real estate is to purchase property directly. For most individuals, this means buying a home, renting it out and selling it at some point in the future. Some folks choose to buy, renovate and then flip property with no intention of ever renting it out. Others think big, preferring to invest in massive, commercial projects. Some even pool resources with others by creating real estate investment groups. As discussed above, there are many different ways to buy real estate directly or indirectly.