‘Ethical’ buy-to-let investment puts money into affordable homes

A property investment claiming to be an ethical alternative to buy-to-let helps individuals invest in affordable housing.

Reap, which stands for Real Estate Annuity Plan, aims to offer people a regular return on their cash while using the money to tackle the housing crisis.

The scheme is offered by Equfund, whose core business involves bringing empty properties back into use.

It uses investors’ money to offer loans to social enterprises providing affordable housing.

Minimum investments start at £15,000 and people earn 3% a year on their cash.

What are the advantages of the scheme?

Following a raft of tax hikes and new regulations, the buy-to-let sector is no longer as appealing to investors as it once was.

Reap enables people to invest in property without all the associated hassle of being a landlord and the risk of having no income during void periods.

It provides a fixed regular income for investors with no hidden fees.

All properties are covered by rent guarantee insurance, so investors still receive an income even if the tenant falls into arrears.

The initial investment period is for five years, after which investors can access their money after giving 90 days’ notice.

People can also gain satisfaction from knowing that their savings are being used to help others.

What are the downsides?

Perhaps the biggest factor investors should be aware of is that investments in Reap are not covered by the Financial Services Compensation Scheme in the way that traditional savings providers are.

The scheme pays single account holders compensation of up to £85,000 to cover money they lose as a result of their provider going insolvent.

Reap points out, however, that its loans are secured against properties, and it never lends more than 85% of a property’s value, offering investors some security.

Investors’ legal interests in properties are also registered with the Land Registry.

Reap invests in affordable housing, so its rents are deliberately set at a lower level than market rates.

As a result, the 3% return you receive on your money, while higher than you would obtain from a fixed rate savings account, may be lower than the yield you could achieve by purchasing a buy-to-let property.

Finally, while the scheme does not have some of the disadvantages of investing directly into property, such as maintenance costs, investors will also not benefit from any increase in property values.

What other property investments are there?

Property ISAs offer an alternative for savers who would like to gain exposure to the housing market.

The tax-free investments, such as the one offered by Zoopla’s partner Bricklane.com, pool investor’s cash into a REIT and use the money to purchase buy-to-let homes across UK cities.

Unlike Reap, investors benefit from both the rental income and any increases in the value of the properties purchased.

However, the return is not guaranteed at a fixed amount, as is the case with Reap and you can only invest up to £20,000 each tax year.

Top 3 takeaways

  • A property investment which claims to be an ethical alternative to buy-to-let helps individuals invest in affordable housing.
  • Reap uses investors’ money to offer loans to social enterprises providing affordable housing.
  • Minimum investments start at £15,000 and people earn 3% a year on their cash.

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