Alternative Investments to Bitcoin
What alternatives are there to bitcoin and premium bonds to receive returns?
Shares in bitcoin are sky-rocketing and premium bonds were seen as safe haven but offer small returns. But are there investments that can provide attractive returns without the gamble? What is the bitcoin alternative?
- Paltry returns for premium bonds
- Retirement homes - a newly emerging investment sector
- Buy to let investors to look outside London and South East
Since the start of the year the value of a single bitcoin has increased fivefold from £750 to £3,770, and has recently just topped £5000 in value. Its soaring value has sparked intrigue from investors and many are considering whether to buy shares or whether it has reached its limit on how much it is worth. An increasing number of businesses are accepting them, and a London developer is allowing tenants to pay their deposit using the currency. Yet bitcoin has also polarised opinions and at a recent conference in response to a moderator question JP Morgan boss Jamie Dimon said that bitcoin would eventually blow up as its anonymous nature meant it was only fit for drug dealers according to numerous sources such as Bloomberg and the Financial Times. Its value is also buoyed by the fact that a finite amount of 21 million bitcoins can ever exist and they are becoming increasingly difficult to mine. However, there is a question about its’ utility; the cryptocurrency’s valuable would increase when they became more widely accepted as a form of payment thus increasing the demand for them.
Whilst some investors might be encouraged by its increase in value since the beginning of the year, some might be reticent to invest due to its fickle nature. From June – July the value of a bitcoin decreased by more than $1,000 and in less than four days in November it lost almost a third of its value before dramatically clawing most it back. The investment does require an individual to have nerves of steel. So what is the bitcoin alternative?
Premium Bonds are one of the UK’s biggest saving products, but they also yield an uncertain return and per £1 bond individuals have a 1 in 30,000 chance of winning a paltry £25. It is no surprise that people are finding these returns disappointing. Previously, the main attraction of Premium Bonds was that prizes were paid tax-free, so many people plunged their savings into them to avoid paying additional tax on them. However, recent government amendments to tax and savings means that all savings interest is automatically paid tax free, and individuals only pay tax if they are earning over £1000 in interest per year (if they are a basic 20% rate tax payer).
It appears investments that have the capacity of yielding great returns also carry with them a significant amount of risk and volatility. Low risk investments such as premium bonds yield meagre returns of between 1.25% – 1.35%. Money saving expert, Martin Lewis, says investors should dump premium bonds. Investors are curiously seeking a safe store for their savings that will provide lucrative returns, without the worry that volatility creates.
UK Property – “there is an underlying resilience in prices” – Moody’s
Despite political upheaval in the UK as of late, property remains a relatively stable investment. Although a rise in interest rates is expected, ratings agency Moody’s has predicted that the UK property market will remain stable and resilient. Prices correlate with demand, and the lack of housing stock means that demand always outweighs supply, thus pushing prices higher, in fact house price growth was at a three-month high in October. High levels of employment and low interest rates on mortgages have also helped to buoy prices.
One of the strongest performing investment types are luxury retirement homes investments. The UK’s population is ageing and over 60s own a significant proportion of the country’s wealth. Many are looking to downsize but the lack of housing stock means that smaller houses are not always available for them to move in to. Retirement homes differ from nursing homes in that occupants are generally self-funded, and instead of needing round-the-clock specialist nursing care, they may require help with simple self-care tasks, or even just someone to lend a sympathetic ear. The self-funded nature of the luxury retirement sector means that it is generally more robust than care home investments, as individuals are not reliant on funding from local authorities, which can often limit the profit margins a care home can achieve.
Retirement homes are in areas where there are high percentages of wealthy over 65s such as London, the South East and the South West. A significant proportion are in Devon and Cornwall, as many choose to spend their retirement in coastal villages enjoying a slower pace of life, rather than in busy cities. Suites in a luxury retirement home along the English Riviera typically sell for £79,950 and offer 10% returns over a 10-year commercial lease. Due to the luxurious nature of the development, activities such as wine tasting, afternoon teas and daily excursions to explore the surrounded area are regularly held. Interiors are furnished to the highest standard, and offers a gym facility, cinema room and a hair salon to really pamper the residents.
“The luxury retirement home sector has seen lots of interest from large investors, who are clearly onto something.” Says investment director Arran Kerkvliet from One Touch Property. “The older population in the UK sit on a significant portion of the country’s wealth, so the weekly fees are not as unaffordable to them as they are for many others. Also, the retirement homes help to cultivate a feeling of fulfillment and wellbeing, which becomes increasingly important to them at a time where they could be facing isolation – and you can’t put a price on that.”
Britain’s ageing population is a certainty and an individual doesn’t need to be a gambler to put money on their being a demand for more retirement homes. There is the possibility to earn inflation beating returns of ten per cent per annum from a sector which has outstanding support due to the well-known care home crisis.
With regards to buy-to-let investments, success will be dependent on many variables and location is one of the most important factors. House prices in central London and the south east for example are so expensive that it will be almost impossible to achieve a good yield on an investment, as rents have not risen at the same rate. There is also uncertainty with regards to capital growth, as Brexit and additional stamp duty charges have somewhat stemmed enthusiasm and demand for London property.
An expensive London property market has caused investors to look outside of the capital and consider other major UK cities. Northern cities such as Liverpool and Manchester have stepped into the limelight, and their appeal has been boosted by the northern powerhouse scheme the government is currently rolling out, to improve the economies and transportation system in the UK’s northern cities.
The advantage most northern cities have other London is more affordable housing. The overall average house price in Liverpool is £152,406, compared to an astonishing £726,169 in London. With the additional fees levied on property of this value, it is unsurprising that rental yields must be astronomical to compete with what can be achieved in Liverpool.
Below market value property has the potential to offer even higher yields due to the lower investment price and one particularly exciting opportunity is Tobacco Wharf in Liverpool. An interesting conversion of a former tobacco warehouse; 90 one and two-bedroom apartments are assembled over its 5 floors. The advantage of this investment is that it is fully built and fully tenanted, meaning there is no development risk and the opportunity for immediate income. Many investors are receiving circa 8% net rental yields from existing tenants, but for the more cautious investor, the developer is offering a rental guarantee of 7%. The price of a one-bedroom apartment in Tobacco Wharf start from £84,995.
“Below market value property allows investors to attain even higher yields.” Says investment director Arran Kerkvliet. “Tobacco Wharf is a particularly appealing opportunity to investors as it is based in Liverpool – a city already touted as one of the best buy to let areas in the UK – and is below market value. It also offers a unique living experience in Liverpool, being such an iconic building and right beside the canal.”
For those wanting to make adequate returns on their savings, but are concerned about the volatility of potentially high-yield investments such as bitcoin, property investment offers a more stable alternative. Price growth is forecasted to be steady at 2.5% for areas outside of London, and rents have grown the most in the north west of the country.
In short, Britain’s property market is fairly assured, compared to some of the more volatile investments such as bitcoin that increase and decrease in value drastically and often. For those looking for good returns, without the daily stresses of checking an investment’s performance, property offers a way to get rich slowly without the heart-stopping volatility.
If you are interested in alternatives to Bitcoin that can still produce healthy yields, why not find out how you can get started with a care home investment and which places outside of London to consider for investment
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