As most of you know, we provide an end-to-end service helping London professionals invest in properties in the North. While we are big fans of the concept, we always make it a point to share the truths about the investment. We’d rather spend time at the beginning making sure clients understand what they are getting themselves into, then to fall short of the clients’ expectations at the end.
In this article, we share some real truths about investing in property.
1. It’s not a ‘Get Rich Quick’ scheme
Property is a great vehicle for changing your financial destiny, but it’s not going to happen overnight. While it’s true that there are some short-term strategies that can be profitable if the conditions are right, in order to truly reap the rewards, you have to be in it for the long run. Over a decade, the capital appreciation on the property in most cases is double the accumulated annual profit, so it’s all about building wealth steadily over the years.
2. There’s no such thing as ‘passive income’
Here’s the deal, there is no such thing as a completely passive incomes stream. As with all investments, investing in property will require some of your time and attention. Depending on your strategy, whether that is buying and selling, investing in a buy to rent development, or working with a property investment service like ours, which provides the end-to-end solution, the amount of time will vary, but your input will always be needed, if not, just to check in on the investment.
3. The value of your property can go down as well as up
It is easy to assume that with growing property prices, buying a property and sitting tight will guarantee you a profit. But things aren’t always that straightforward. During the 2008 property crash, some properties were worth half their original value, and some parts of the country still haven’t recovered! The reality is, no-one can predict the future, so no investment is guaranteed to grow in value. However, putting your money into bricks and mortar is a tried and tested option that has stood the test of time.
4. The market is largely unregulated
Many agencies, like ourselves, that sell properties and not investment products, are not required to be FCA regulated. That means that if we don’t achieve the returns we initially expected, there is no real mechanism for recourse. Of course, we always aim to exceed our client’s expectations, but unfortunately, there are people out there that just want to make themselves rich at the expense of their clients. It is always best to do your own research into all investment options and look out for proven results. If it sounds too good to be true, it probably is!
But, on the positive side…
1. The returns are semi-passive
Dependent on the investment model you decide to pursue, generally, once your rental property has been tenanted, you can sit back and enjoy the rental returns that your property provides. You may have to give the go ahead for maintenance works every so often, and of course, you’ll have to make sure you’re actually receiving the rent, but if you have a good team to manage your property well, that should be it.
2. The returns are likely to be positive
The UK is an economically stable economy which attracts foreign investment. We also live on an island, which means that as the population increases, the demand for buying and renting property does so too, so the prices (and rents) increase. Across the UK, average house prices have increased by 51.3% over the last 10 years and rents by 24.9% over the last 5 years. This is excellent news for investors!
3. You can leverage your funds using a mortgage
There are not many markets where you can you walk in with £25,000 and walk out with an asset worth four times as much. Now that you own the asset, not only are you able to keep the rent that you receive (for a small fee that they call the interest rate), but you also get to keep ALL the capital appreciation on the £100,000 asset for as long as you hold it! So, while 75% of the property is effectively owned by the bank, you are able to make and keep the profit on the whole thing! This lucrative system allows you to supercharge your returns, and this is especially true when interest rates are low.
4. It can be a good bet against inflation
Over the last 120 years, house prices have increased steadily and kept up with inflation. This is because as well as being an investment vehicle, property is a good or service, like any other in the economy. And as the amount of bank notes in the economy increases, the value of each one decreases, creating an inflation in the prices of those goods and services, including housing. As a result, the industry is said to be ‘inflation-proof’, protecting wealth over time, by growing it in real terms. This is unlike cash in savings accounts, which actually reduces in value after taken into account inflation.
5. It is less volatile than other asset classes
Property is a tangible asset that exists outside of numbers on a screen, whether that is as a bank balance or financial statement. It is something that you can touch and feel, and is a basic necessity, so it is unlikely to go down to zero, even in a crash. Because it takes time and money to buy and sell property, the market is typically less volatile than the stocks market. Property prices tend to weather short-term storms better as it usually takes a few months of negative data before investors think about selling. As a result, an investment in tangible assets could reduce your exposure to overall market volatility in a way that most intangible assets such as stocks and shares just can’t.
It’s easy to get carried away with expected returns, but it is important to understand fully the pros and cons of each asset class.
If you’re still interested in starting your property investment journey, register your interest today!