Where to Invest Money to Get Monthly Income?

When assessing where to invest money to get monthly income UK, some avenues will make more sense than others. In this article, we explore the benefits of investing money to make monthly passive income, several ways to achieve it and why property is one of the smartest decisions. 

Why Invest Money to Generate Monthly Passive Income? 

Passive income has the benefit of allowing you to diversify your income stream, making you less dependent on an employer and job thanks to an alternative source of revenue. 

Let’s take a closer look at the benefits of investing for passive income: 

• Stability and Predictability

Investments that generate monthly income provide stability and predictability, which is crucial for financial planning. Whether through dividends from stocks, interest from bonds, or rental income from properties, having a steady income stream helps investors cover expenses and meet financial goals. 

Knowing that there will be a regular influx of funds allows investors to manage their cash flow better, reducing the stress associated with financial uncertainty. This stability can be helpful during times of economic downturn or market volatility.

• Hedge Against Inflation

Generating monthly income from investments can serve as a hedge against inflation. Assets that produce regular income, such as dividend-paying stocks or rental properties, tend to maintain their purchasing power over time.

Unlike holding cash, which loses value in real terms as inflation erodes its purchasing power, income-generating investments have the potential to keep pace with or even outpace inflation. This helps investors preserve the value of their wealth and maintain their standard of living in the face of rising prices.

• Portfolio Diversification

Investing in assets that generate monthly income adds diversification to an investment portfolio, spreading risk across different asset classes. Diversification helps mitigate the impact of volatility in any single investment or sector.

• Long-Term Wealth Accumulation

Generating monthly income from investments is not just about meeting immediate financial needs; it’s also about building long-term wealth. Reinvesting income back into the portfolio can accelerate wealth accumulation through compounding.

Over time, income-generating investments have the potential to appreciate in value, leading to capital appreciation in addition to regular income. This dual benefit of income and capital growth can significantly enhance investors’ financial well-being over the long term.

Investing money in the UK to generate monthly income can serve various purposes, from funding discretionary spending and enjoying holidays to saving for significant goals like buying a house. 

It also plays a crucial role in long-term planning, such as preparing for early retirement. Initially starting as a supplementary strategy, income-generating investments have the potential to grow into a primary source of income over time. 

Investments That Pay Monthly Income

Investments with monthly returns vary widely, and below, we have listed some of the best sources. Setting yourself up for monthly passive income will usually require upfront money, time, or both initially. But by investing these resources upfront, you can reap the benefits later.

Dividend-Paying Stocks

Some investors in the UK may opt to generate passive income from dividends generated by mutual funds or exchange-traded funds (ETFs). Dividends are typically paid every quarter instead of monthly, but it’s still an effective way of gaining consistent income.

What are the Benefits of ETFs?

• Diversification: ETFs offer instant diversification by holding various securities within one fund, spreading risk across different assets and industries, making it convenient for investors.
• Liquidity: ETFs trade on major exchanges throughout the day, ensuring easy buying and selling at market prices, and providing investors with flexibility and quick access to their investments.
• Low Costs: With lower expense ratios than actively managed funds and often being passively managed, ETFs offer cost efficiency, potentially leading to higher returns for investors while minimising fees.

What are the drawbacks of ETFs?

• Limited Control: ETF investors have limited control over the specific assets held within the fund, as the fund manager determines the portfolio composition. 
•  Price Volatility: Due to their structure and trading on exchanges, ETF prices can experience increased volatility, especially during periods of market turbulence. This volatility may lead to price fluctuations that could affect investor returns and increase the risk of losses.Generating monthly passive income is the dream for many. Wealth begets wealth, and by detaching your ability to earn from the time you have in a day, you can put your money work to reach your financial goals.

The challenge with ETFs is acquiring the knowledge to find value investments and stocks capable of offering long-term dividends and understanding where the value lies in the coming years and decades.

Bonds

Bonds are another way to invest money in the UK to generate monthly income. Government and corporate bonds exist and basically act as loans from you to a borrower. 

As a lender, you will typically receive interest back with your investment on a regular basis, and bonds typically pay out interest payments on a monthly basis until they mature. 

What are the benefits of investing in bonds? 

• Income Stream: Bonds provide a reliable income stream through periodic interest payments, which can be especially appealing for investors seeking steady cash flow. 
• Capital Preservation: Bonds are generally considered less volatile than stocks, making them a valuable tool for capital preservation. The fixed interest payments and return of principal at maturity offer a level of stability that can help protect investors’ capital, particularly during periods of market uncertainty.
• Diversification: Adding bonds to an investment portfolio can enhance diversification by reducing overall portfolio risk. Bonds often have low or negative correlations with stocks, meaning they may perform differently in various market conditions, thus providing a buffer against stock market volatility.

What are the drawbacks of bonds? 

• Interest Rate Risk: Bonds are susceptible to interest rate risk, meaning their prices may decline when interest rates rise. This risk can erode the value of existing bond holdings, potentially resulting in capital losses for investors who need to sell their bonds before maturity.
• Inflation Risk: Bonds also face inflation risk, as the purchasing power of fixed interest payments may diminish over time if inflation outpaces the bond’s yield. This could lead to a reduction in tangible returns for investors.
• Credit Risk: Bond investors are exposed to credit risk, which refers to the possibility of the bond issuer defaulting on interest payments or failing to repay the principal amount at maturity. Bonds with lower credit ratings typically offer higher yields but carry increased credit risk, making them more vulnerable to default.

While bonds are generally considered low-risk, they are lower-return investments, which may not deliver the return investors are seeking. 

Buy-to-Let Properties

When it comes to monthly income investments, rental property can be lucrative. With a buy-to-let property, you generate rental income from tenants while still having an asset that will most likely appreciate in value. The monthly rent you receive can be used to cover mortgage payments and maintenance on the property.

What are the benefits of investing in buy-to-let property?

• Rental Income: Buy-to-let properties offer a consistent source of rental income, providing investors with regular cash flow. This income stream can be particularly attractive for investors seeking passive income to supplement other sources of revenue.
• Potential for Capital Appreciation: Buy-to-let properties have the potential to appreciate in value over time, allowing investors to build wealth through capital appreciation. This can result from factors such as property market dynamics, renovations, or developments in the surrounding area.
• Portfolio Diversification: Investing in buy-to-let properties can diversify an investment portfolio, reducing overall risk. Real estate often behaves differently from traditional financial assets like stocks and bonds, providing investors with a hedge against market volatility and economic downturns.

What are the drawbacks of investing in buy-to-let property? 

• Maintenance and Management: Buy-to-let properties require ongoing maintenance and management, including repairs, tenant issues and property upkeep. This can be time-consuming and costly, especially for investors who manage their properties themselves or lack experience in property management.
• Vacancy Risk: Buy-to-let properties are susceptible to vacancy risk, meaning periods when the property is unoccupied and not generating rental income. Vacancies can occur due to factors such as tenant turnover, economic conditions, or seasonal fluctuations in rental demand, leading to a loss of revenue for the investor.
• Liquidity Constraints: Unlike stocks or bonds, buy-to-let properties are illiquid assets that may take time to sell. Investors may encounter challenges when trying to liquidate their investment quickly, especially during downturns in the property market or if there are limited buyers interested in the property.

One of the benefits of investing in property is that rents adjust with inflation, so there is generally no need to worry about diminishing returns. You’ll also have the advantage of predictable income, as you will know the monthly income you will generate from rent. 

Investing in a rental property also gives you the opportunity to reinvest: A property that generates £1,000 per month in passive income could cover the mortgage and property expenses. Money can eventually be reinvested as a down payment for another property, giving you a self-perpetuating cycle of growing wealth and income. 

Generally, the risks associated with buy-to-let property such as tenants failing to pay can be mitigated through due diligence. You’ll need to invest time and knowledge to ensure that a property purchased will be profitable—both in terms of generating monthly rental income and capital gain— so you don’t lose money upon sale of the property. 

Where to Invest Money to Get Monthly Income UK: Other Places to Invest

• Cryptocurrency

Investing in cryptocurrency offers a way to generate monthly income from crypto investments. By staking your crypto assets (agreeing not to trade or sell your tokens), you can earn rewards or interest, which are paid out regularly, providing a passive income stream. 

What are the Benefits of Investing in Cryptocurrency?

• High Return Potential: Cryptocurrencies have shown the ability to yield extremely high returns in a relatively short period due to their high volatility. For instance, early investors in major cryptocurrencies like Bitcoin or Ethereum saw exponential growth in value. However, this high reward potential comes with high risk, as prices can also plummet just as rapidly.
• Diversification: Adding cryptocurrencies to a diversified investment portfolio can reduce risk by spreading exposure across different asset classes. Cryptocurrencies often correlate little with traditional financial markets such as stocks and bonds. This characteristic can help in hedging against market downturns in conventional assets.
• Accessibility and Liquidity: Cryptocurrencies are accessible to anyone with an internet connection, providing a democratised platform for investments without the need for traditional banking systems. They offer high liquidity compared to other investments, meaning they can be quickly converted into cash or other tokens. 

The 24/7 open nature of the cryptocurrency market means trading and liquidation can be done at any time without waiting for markets to open, as is necessary with traditional stocks.

The Drawbacks of cryptocurrency

Investing in cryptocurrency also presents several challenges and risks that potential investors need to consider:

• High Volatility: Cryptocurrencies are notoriously volatile, with prices capable of significant fluctuations within very short periods. This can lead to substantial gains, but also severe losses, making crypto investments unsuitable for those with low risk tolerance. Investors need to be prepared for the possibility that their investments could drop significantly in value overnight.
  
• Regulatory Risk: The regulatory environment for cryptocurrencies is still evolving, with potential for significant changes that could impact the market. Governments around the world are in various stages of implementing regulations, which could include restrictions, or even outright bans, affecting the use and value of cryptocurrencies. This uncertainty can introduce additional risk and instability to crypto investments.
• Security Concerns: While blockchain technology itself is generally secure, cryptocurrency exchanges and wallets are vulnerable to hacking and other types of cyber attacks.

Investors might lose their digital assets if the platforms they use are compromised. Furthermore, there is often no legal recourse if digital assets are stolen due to the anonymity and cross-border nature of cryptocurrencies.

Another avenue for investment could be a high-interest savings account, which has the benefit of avoiding the need to make a large purchase beforehand and requires no loss of liquidity. Banks will offer different interest rates, and many online banks will offer rates higher than the traditional brick-and-mortar institutions.

Investing for income and investing for growth are two different things. For investors looking to gain growth, generating passive income with skills or through a high-interest savings account is unlikely to deliver higher returns when compared with other avenues.

Best Place to Make Money With Low Risk? A Buy-to-Let Property

When considering where to invest money to get monthly income UK, focusing on real estate is perhaps the best option—giving you the prospect of solid returns with relatively low risk. 

Across the UK, there is no shortage of people looking to rent a house or apartment, and in certain areas and cities, demand for quality rental property exceeds supply.

By renting out your property to tenants, not only do you get a predictable monthly income, but by investing in an area with strong yields, the rental income generated could even cover costs such as maintenance, taxes and other fees, enabling the property to pay for itself. 

When the mortgage is paid off in full, you could have a significant level of passive income coming in on a monthly basis. Investing in property also gives you the ability to drive your net worth over time; as the property increases in value, you have an asset that will deliver a return when you come to sell it.

The Upfront Costs of Investing in Property

One thing property investors looking to generate a monthly income should consider is the upfront costs associated with buying a property. 

• Purchase Costs:

When investing in property, investors incur various purchase costs, including the property’s purchase price, stamp duty land tax (SDLT), legal fees and conveyancing costs. These expenses are typically incurred upfront and can significantly impact the initial investment outlay.

If you want to get an indication of how much stamp duty you will have to pay on a property, using a stamp duty calculator can help. Aspen Woolf’s Stamp Duty Calculator is a helpful tool to give you a better understanding of how much you will need to pay on a property. 

• Renovation and Improvements

Renovating or improving a property before renting or selling it can enhance its value and appeal to tenants or buyers. However, these renovations come with upfront costs, such as materials, permits and professional fees, which investors must budget for in advance.

• Financing Costs

Financing a property purchase through a mortgage involves additional upfront costs, including things like valuation fees and solicitor fees. Investors may also need to provide a deposit, typically a percentage of the property’s purchase price, normally 5-40% of the property price. 

The exact upfront cost will depend on multiple factors, including whether the property is non-residential or mixed-use, and whether you’re a first-time buyer. 

Where to Invest Money to Get Monthly Income UK 

When considering investing in property in the UK to generate a monthly income, there are a few popular locations that foreign investors cast their eyes towards. 

The UK is home to a number of buy-to-let hotspots that present investors with great opportunities to earn ongoing passive income as rental income.  

For the buy-to-let investor focusing on monthly rental income, aiming to find a property that can deliver a rental yield of around 5% is a good benchmark. This should allow you to cover the ongoing monthly costs of owning a property – mortgage fees, taxes, repairs, upkeep, etc. Read more about property yields in this article: What Makes a Good Property Yield.

Three Things to Know About Rental Yields: 

• Understand Gross Yield

Gross yield is a key metric used to evaluate a property’s potential return on investment. It is calculated by dividing the property’s annual rental income by its purchase price and expressing the result as a percentage. 

A higher gross yield indicates a potentially more lucrative investment opportunity, but investors should consider other factors, such as expenses and vacancy rates.

• Understand Net Yield

Net yield provides a more accurate picture of the actual return on investment after deducting maintenance costs, property management fees, taxes, and void periods. 

Calculating net yield helps investors assess the profitability of a property investment more realistically, taking into account the costs associated with property ownership.

• Factors Influencing Yields

Several factors can influence property yields, including location, property type, market conditions and rental demand. Properties in high-demand areas with strong rental markets typically command higher yields. 

Additionally, factors such as property condition, tenant quality and lease terms can also impact yields, highlighting the importance of thorough research and due diligence before investing.

In short, the higher the yield, the better, so finding areas with low property prices and a growing rental market is a good strategy. 

Locations to Consider

Leeds

The property market in Leeds has seen significant changes. The average house price currently stands at approximately £274,000, reflecting a slight increase of 3.04% over the last six months​​. 

The average rental yield in Leeds is notably strong at 6.2%, positioning the city as an attractive option for buy-to-let investors​. Leeds remains a highly sought-after location due to its diverse economic sectors and cultural offerings, which continue to drive residential and rental market growth.

In terms of market dynamics, properties in Leeds take an average of 13 weeks to sell, and there’s a common trend of asking prices being reduced by about 1.5% on average to close sales​​. 

The ciiy’s property market benefits from a broad array of housing options, catering to a variety of investment strategies and buyer preferences, from city-centre apartments to suburban family homes.

Leeds’ rental market is buoyed by its status as a vibrant student city and an increasing number of young professionals drawn by the city’s lifestyle and job opportunities. These factors collectively contribute to making Leeds a robust market for property investment.

Which properties in Leeds have the potential to generate monthly passive income?

Sky Garden Leeds is a development in the centre’s Southbank district which includes the refurbishment of the Grade II Listed Midland Mills and the creation of a residential tower. New builds offer many advantages and the properties available could give investors a steady stream of passive monthly income.

Nottingham 

As of early 2024, Nottingham’s property market is experiencing notable growth. The average house price is approximately £238,000, reflecting a significant increase of 13.74% since early 2022. 

Nottingham stands out for significant capital growth potential among UK cities. Savills predicts a steady increase in property values, reinforcing the optimistic outlook for Nottingham’s property market​

Rents in Nottingham city center have increased annually. The city’s average rental yield is robust, currently at about 8.8%, making it an appealing prospect for landlords and investors due to high demand and limited supply​.

Regarding future growth, the region is set to benefit from infrastructural developments, including improvements in connectivity through expanded tram and bus and rail networks. These enhancements are expected to boost the already high rental yields and property values in the area​. 

Which buy-to-let properties in Nottingham have the potential to generate monthly passive income?

The Wells Nottingham is a brand-new boutique development minutes from Nottingham city centre. With the city’s thriving rental market, investors can benefit from projected yields of around 7.5% meaning a good means of monthly rental income is certainly possible.

Manchester 

Manchester continually ranks top among the UK cities landlords are most likely to invest in. 

The property market forecast for Manchester indicates continued growth in both sales prices and rental rates over the next five years, despite a high volume of property development. 

The average rent for a two-bedroom flat is currently around £1,145. Moving forward, cumulative rental growth is expected to be significant. Specifically, UK-wide rental growth is anticipated to increase annually by 3-4% between 2023 and 2026, with Manchester expected to see some of the highest increases at about 6%​. 

Which areas of Manchester are good for generating monthly rental income?

• Fallowfield: This area is attractive for student housing due to its proximity to the University of Manchester and Manchester Metropolitan University. Fallowfield offers properties worth around £281,099 and can generate average rental yields of 11.56%, significantly above the city average, making it an ideal hotspot for investment, especially in student accommodations​.
• Old Trafford: While the rental yields here are lower at 4.65%, the area is known for long-term capital growth. Recent price increases and significant infrastructure projects like the HS2 railway suggest potential for future appreciation, making it a sound option for long-term investors​.
• Openshaw, Ordsall, Blackley and Debdale: These areas are noteworthy for their high rental yields, with Openshaw leading at 7.6%, followed by the others at around 6.7% or more. 

How do I Get my Monthly Income from Investments UK?

In the UK, investors can generate monthly income from their investments in several ways. Here’s an overview of the main strategies:

• Dividend Stocks: Investing in stocks of companies that pay dividends is a popular way to earn regular income. Companies distribute a portion of their profits as dividends to shareholders, typically on a quarterly basis. Investors can look for companies with a strong dividend yield and a history of consistent payments.
• Rental Income: Owning rental properties can provide steady monthly income through rent payments from tenants. This income can be especially lucrative in areas with high demand for rental accommodations. The key is to manage the properties efficiently or hire a property management company to maintain the profitability of the rentals.
• Bonds and Fixed Income Securities: Bonds are a type of investment that offers regular interest payments, making them an excellent source of steady income. Government bonds, corporate bonds, and municipal bonds are common options. The interest is usually paid semi-annually or annually, but some bonds like coupon bonds offer monthly payments.
• Peer-to-Peer Lending: Through peer-to-peer lending platforms, investors can lend money to individuals or small businesses in exchange for regular interest payments. This type of investment can offer higher returns compared to traditional savings and fixed-income investments, albeit with a higher risk.
• Investment Funds with Income Distribution: Certain investment funds are designed to provide income, such as income funds or distribution funds. These funds invest in a variety of assets, including stocks and bonds, and aim to pay out income regularly, which can be set up to be distributed on a monthly basis.

What is the best investment for a monthly income?

Investing for a monthly income can be achieved through various assets, each offering different levels of risk and return. Here’s are a few of the most popular investment options:

• Dividend Stocks: Companies that have a history of paying regular dividends can offer a reliable source of monthly income. These stocks are typically found in mature, stable companies in sectors like utilities and consumer goods. The key to success here is selecting companies with a strong financial foundation and a consistent dividend payout history.
• Bonds: Government and corporate bonds are a common choice for generating income. Bonds typically pay interest at regular intervals and are considered lower risk compared to stocks. Investors can opt for bonds that pay monthly to match their income needs.
• Real Estate Investment Trusts (REITs): REITs own and operate income-generating real estate and are required to distribute a majority of their profits as dividends. This makes them a good option for regular income, and they can offer the added benefit of diversification in a real estate portfolio without the need to directly manage properties.
• Annuities: Annuities are insurance products that can provide guaranteed income for life or a set period. They can be structured to pay out monthly, offering predictability and security in retirement, but they often come with high fees and complex terms.
• Investing in Property: Property investment stands out as a particularly effective way to generate monthly income, especially due to rental income. Here’s why:
• Steady Income Stream: Real estate investments can provide a continuous source of income through rents, which can be adjusted over time to reflect changes in the market and inflation. 
• Capital Appreciation: In addition to the monthly income from rents, properties typically appreciate in value over time, providing potential capital gains. This dual benefit can offer an attractive return on investment.

Investing in property combines growth potential with a steady income, making it a compelling choice for investors seeking monthly income. However, it requires careful consideration of location, property type, and market conditions to optimise returns and minimise risks.

Which Investments Have the Best Returns UK?

In the UK, several investment options are well-regarded for their potential to deliver strong returns. Here are some of the best investments you can consider:

• Stocks: Investing in individual stocks remains a top choice for high returns, especially if you can identify companies with strong growth potential. However, this comes with higher risk, particularly if you’re investing in a few stocks without diversification.
• Funds: Mutual funds and exchange-traded funds (ETFs) are popular for their diversification benefits. Funds like the iShares Core S&P 500 UCITS ETF and Fundsmith Equity have shown robust performance, providing investors with exposure to a broad range of assets​.
  
• Real Estate: The property market in the UK, particularly in regions like London, Manchester, and Birmingham, continues to offer lucrative opportunities for both capital appreciation and rental income. Real estate can be a particularly attractive investment due to the potential for dual income streams​​.
• Bonds and Fixed Income Securities: Government and corporate bonds are traditionally considered safer investments compared to stocks and can provide steady income. They are particularly appealing during times of market volatility​.
• Alternative Investments and Cryptocurrencies: For those with a higher risk tolerance, alternative investments like cryptocurrencies offer the potential for high returns. However, these markets are highly volatile and require a good understanding of the risks involved.

If you’re considering where to invest money to get monthly income UK, be sure not to overlook buy-to-let property as an option. To find out more about investing in property to generate monthly returns, get in touch with us today.