You don't need a private fortune to make money in property

Just as first-time buyers are being priced out of the owner-occupier market, first-time investors find it difficult to come up with the large initial sum needed to secure a buy-to-let property.

Even if a small investor can raise enough money to buy a property, it's risky. It only needs the council to plan a new by-pass through your investment and your pension plan could be wiped out. So investors are turning to communal investments, either by joining a syndicate or by buying shares in a property fund.

Syndicates are small groups of investors who join together to buy a specific property, usually managing it themselves (though companies such as Consortium Investment Management have sprung up to bring syndicates together and provide management services). The advantage of a syndicate is that a close-knit group can put finance together and move quickly when a suitable building comes on the market.

The disadvantages are that the minimum investment can be quite high, and getting the money out will usually involve selling the property and winding up the syndicate - and not everyone may want to do that.

Property funds own and manage property on behalf of their shareholders, offering the security and growth of property investments but without the hassle of renting out your investment yourself.

Several types of property fund exist, specialising in areas such as housing, office blocks, industrial units, shops or overseas property. As little as £5,000 is needed to buy into a fund.

Stuart Law is the managing director of property fund provider Assetz, which specialises in regeneration areas to maximise capital growth. He says: "Investors are attracted to the hassle-free aspect of investing in property funds, which appeals to those who want to make money for their retirement but do not have the time to be a landlord."

Property funds do not offer the same levels of profit as traditional buy-to-let because they have overheads, but returns are still good. "With 7 per cent capital growth in the UK looking likely by the end of 2006, opportunities still abound for investors looking to profit from property," Law says.

There are two basic types of fund: those regulated by the FSA and those that are not (though both types are run by regulated managers). Unregulated or "closed" funds can borrow more money than regulated funds - up to 85 per cent - so they can buy much larger property portfolios.

The downsides of unregulated funds are that the risk is a little higher and the investment cannot easily be withdrawn before a fixed term, usually seven or 10 years. Capital in regulated or "open" funds can be withdrawn at any time.

With a fund, not only is the scale of investment much more manageable, but the fund owns a wide variety of properties that spread the risk. "A huge benefit of the low entry level of just £5,000 means that investors will be able to diversify their portfolios, without pouring all their retirement savings into just one property, exposing themselves to risk," Law says.

A new type of property fund arrives in the UK in January 2007 - the Real Estate Investment Trust, or Reit. Announced by the Chancellor last year, Reits are property funds that pay no taxes on condition that they pay at least 90 per cent of profits as dividends to shareholders. If the shareholder pays tax, then the tax will be taken from them, but it is expected that many Reits investments will be made by pension funds that can then benefit from their tax-exempt status.

Most property investment companies are expected to convert themselves into Reits. One of the largest, British Land, announced the move last week. Credit Suisse has predicted that the introduction of Reits will lead to the UK's listed property sector doubling from £43bn to £80bn in just five years.

Estate agents DTZ Residential believe Reits will be popular, giving investors enough buying power to stimulate the market even further. "Property is still seen as a solid investment, which is why the introduction of Reits, and other indirect investment opportunities, are likely to result in an overall increase in investor activity," says William Rogers of DTZ Residential.