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Investment Property - Part 1
As a result of more favourable buy to let rules, the market for individual property investments in the UK has been growing since 1988. Many people feel more confident and comfortable choosing property as their primary vehicle to achieve financial security, rather than the traditional alternatives, such as pensions and stocks and shares. Sadly, in today’s society, it is very difficult, if not impossible, to achieve financial security through work alone. Even if it were possible to discipline yourself to save a large proportion of your income, it is unlikely that the resulting lump sum would ever be enough to retire on comfortably in your sixties. It could be strongly argued that for most people, the only realistic way of achieving financial security is through buying property.
Is Property a Good Investment?
Although a perfectly natural question, it is an over simplistic one, a bit like asking whether or not shares are a good investment. The right question to ask, is if property is generally a good investment? To which the answer would be generally, yes. Whether or not a particular property ends up as a good investment though depends on several factors, factors we have considered below. We hope you will find this information useful and wish you luck in your quest to achieve financial security
Supply and Demand
In the UK we have an increasing population; we also have more and more small family units and single person households. It is self evident that these people all need somewhere to live and that they have to either rent or buy. It is no secret that the supply of property has not kept up with demand which means that all other things being equal prices, will tend to go up. Of course all other things are rarely equal which is why, if you want to by property as an investment, you need to know the rules of the game.
Leverage
The one factor which most distinguishes property as an investment, from other investments, like pensions and shares is leverage. In simple terms leverage means you can use other people’s money to fund your investment in the form of a mortgage. Taken to its extreme, imagine buying a property for £200000 with a 100% mortgage and renting it out to a tenant who pays off the mortgage over 25 years. If the property is then worth £1000000 pounds, you have effectively made an £800000 profit without using any of your own money at all.
Of course leverage can work the other way as well, which is why care needs to be taken and the risks weighed up carefully, but nevertheless, this aspect of leverage is what makes property investment so potentially dynamic for individual investors.