How property investment works
Published on 25th April 2008 by Andrew Ward
The main reason that property investment gives a higher return than other investments and is better at generating wealth is that in most cases whilst the capital to buy the property can be borrowed from banks, you'll get to keep all the capital growth as your profit.
An example
You find a property in the UK for £200,000 and are able to arrange a mortgage for 85% of the value. You go ahead and purchase the property with a £30,000 deposit of your own funds. On the basis that property prices in the UK have doubled in value on average every 8.2 years since 1946 we can estimate that in 8.2 years the property has doubled in value. Further, assuming that the rental income has covered major running costs, including mortgage payments, the same property is now worth £400,000. You sell the investment property and pay back the £170,000 mortgage (as you'll have had it on a interest only basis to keep running costs low) and retain the £230,000 balance, £200,000 of which is capital growth profit. Even taking out legal fees and taxes payable it's still a much better return than most other investment vehicles. The cost to you is that you've had £30,000 tied up in the property.
This example shows why, on a risk vs. reward basis, property remains one of the best investment propositions available to you. Investments like pensions and stocks and shares have performed poorly and have left many people with an unsecured financial future. That's why so many people are turning towards property to secure their own financial future or using property to give loved one's greater security or a hand to get on the property ladder before it's too late.
3 Key Stages of Property Investment
As with all Investments, you need to keep in mind that each one has 3 stages. The Entry, The Management & The Exit. Property investment is no different, but has different considerations from other investment types and it's these considerations, or the perceived hassle of these, that makes people feel that Property Investment is a higher risk than it actually is.
The Entry - What's the price, is it below market value, what's the historic and predicted Capital Growth, can I get finance/mortgage?
The Management - How and who do I rent to, do I employ a letting agent, how do I furnish the property, what about repairs, maintainance and tenant letting?
The Exit - The important stage that many forget - you can never liqudate your assets if you can't sell them. How sellable is the property, Will it sell to a owner occupier or another investor, Is there a lot of other similar property up for sale in the area and what are the costs of selling?
We can help you answer and understand all these aspects for all of our Property Investment options. We will guide you through all the aspects of Property Investment that you need to know and then you can make an informed choice as to which Investment Property Strategy is most likely to achieve your financial goals.
Andrew Ward
Set up Ward & Co so that ordinary people could secure their financial futures through Property Investment. Pensions, ISA's, endowments, stock & shares have failed to deliver this and yet at the same time property in the UK and in some Overseas locations has continued to rise steadily.
