Where is £500k best invested in the current property market?
The latest research by the peer to peer lending platform, Sourced Capital, has taken a look at where’s best to invest in the current property landscape.
Sourced Capital looked at the average annual return available on a £500k investment across both the commercial and residential buy-to-let markets, to see which makes the most financial sense despite current market instability.
As a whole, residential buy-to-let offers a better investment option to commercial property with the average UK yield currently at 5%, returning £138k over five years based on annually compounded interest.
The average return across the commercial sector is currently 2.2%, meaning your £500k would return just under £60,000 over the course of five years. However, as with all property investment, this depends on where you invest it.
The best residential buy-to-let option is currently the North West, where yields climb as high as 5.5% on average, returning £153,480 over five years.
The North East and Yorkshire and the Humber are also some of the most profitable pockets for a residential buy-to-let, however, the East of England sits at the other end of the table. The region is home to an average yield of just 3.8%, returning £102,500 over five years. The high cost of buying in the South East and London means they’re also amongst the worst regions for a residential buy-to-let return.
When it comes to investing in a commercial property, the average yield might come in lower than that of the average residential buy-to-let, but depending on which sector you opt for, the returns can be far higher.
Investing in an industrial commercial property would see the average return of 2.2% per year increase to 7.6% or £221,160 over five years. Surprisingly office space as a whole is the next most profitable with a 6.9% annual return bringing a profit of £198,005 over five years. However, narrow your investment to central London and this return drops marginally to 5.8% per year.
The only bricks and mortar investment in the list that would lose you money is currently commercial retail space. Annually, this investment would lose you -6.2% a year, or £136,935 over five years.
Alternatively, investing via a peer to peer platform like Sourced Capital could see a return of 10% a year, climbing to as much as 12% depending on the project you invest in. Over five years, this hands-off approach could return a healthy £305,225, making it the most profitable as well as the least strenuous.
Of course, as with all investments, capital is at risk and the return you receive on any investment can differ both ways to the UK average.
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Based on annually compounded interest
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Investment type
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Initial investment
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Average annual return
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Investment Return after 1 year
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Balance after 1 year
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Balance after 5 years
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Investment Return after 5 years
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Sourced P2P investment
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£500,000
|
10.0%
|
£50,000
|
£550,000
|
£805,255
|
£305,255
|
|
Commercial – Industrial
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£500,000
|
7.6%
|
£38,000
|
£538,000
|
£721,160
|
£221,160
|
|
Commercial – Office
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£500,000
|
6.9%
|
£34,500
|
£534,500
|
£698,005
|
£198,005
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|
Commercial – Central London Office
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£500,000
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5.8%
|
£29,000
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£529,000
|
£662,824
|
£162,824
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Commercial – Retail
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£500,000
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-6.2%
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-£31,000
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£469,000
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£363,065
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-£136,935
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Commercial – Overall
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£500,000
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2.2%
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£11,000
|
£511,000
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£557,474
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£57,474
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Residential – B2L – North West
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£500,000
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5.5%
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£27,445
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£527,445
|
£653,480
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£153,480
|
|
Residential – B2L – North East
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£500,000
|
5.0%
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£24,760
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£524,760
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£638,141
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£138,141
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Residential – B2L – Yorkshire and the Humber
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£500,000
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4.8%
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£23,986
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£523,986
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£632,086
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£132,086
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Residential – B2L – West Midlands
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£500,000
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4.6%
|
£23,040
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£523,040
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£626,078
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£126,078
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Residential – B2L – East Midlands
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£500,000
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4.1%
|
£20,284
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£520,284
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£611,257
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£111,257
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Residential – B2L – South West
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£500,000
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4.0%
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£20,085
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£520,085
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£608,326
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£108,326
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Residential – B2L – London
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£500,000
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4.0%
|
£19,907
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£519,907
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£608,326
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£108,326
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Residential – B2L – South East
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£500,000
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3.9%
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£19,271
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£519,271
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£605,407
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£105,407
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Residential – B2L – East of England
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£500,000
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3.8%
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£19,030
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£519,030
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£602,500
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£102,500
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Residential – B2L – UK
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£500,000
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5.0%
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£24,759
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£524,759
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£638,141
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£138,141
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