Investing in Property

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Investing in Property

There are five good reasons why you should consider property as an investment: –

There are many reasons why investing in property is so popular and why indeed it will remain popular for many years to come.

But, these could be the top five: –

The worldwide population is growing

This is one of the simplest reasons but also the most powerful. Why the worldwide property market will continue to grow in popularity. If you look at countries such as the United Kingdom, where there is a limited land mass and a population which is growing. The simple fact is that the property in popular Cities and Towns will become more sought after in future.

Property is one of the most popular personal assets

We have seen many articles suggesting that first time buyers are now struggling to climb on board various property ladders around the world. This was recently the case stating even the Government are trying to help first time buyers get on to the property ladder. By guaranteeing up to 95% although it is a long way off. Property is also something that you can leave to your family and offer support in financially troubled times. Many people struggle to own their own property.

Renting is increasing

Even though many people want to own their own home the trend for renting is forever increasing. Many tenants can’t afford not only the deposit that is required but also the property prices. Whilst property can go up as well as down many of them are priced out of the market forcing them to rent. Demand for rental properties places further upward pressure on property values thereby creating a vicious circle.

Governments will always consider protecting property

Whilst it may not seem like it at the time. Many business models and businesses go up and down. But the Governments around the world are also pressurised to protect the situation when it comes to properties. The simple fact is that properties are by far and away the largest asset in many countries. Thereby reluctance to not protect property companies will impact upon voting intentions and can make or break Governments.

In the long-term property has always been consistent on returns.

Whilst rental yields can vary depending on where the property is they are always known as a long term return. They are the same as stocks and shares. They rise and fall as well as other investments. But history shows that in the longer term the rental yield and total return on properties is greater. This is not always the case but is considered along with cash, bonds and shares as one of the most important types of investment.

How can I invest in property?

Investing in property takes many forms, from buy to let to property fund investment. We outline here what you need to know about property, but it is something that you should always speak to a financial advisor on.

Why invest in property?

There are two main reasons for you to invest in property.

These are: –

  1. Rent

You can earn money from letting out your property to tenants.

  1. Selling for a profit

Sometimes you can sell a property when you bought it some years ago for a higher amount. This isn’t always the case and there is a risk but as we are saying there is a trend. Even if you don’t want to buy a property yourself, you can get these potential benefits directly through investing in a fund in property.

What are the risks of property investing?

Property prices and the demand for rentals can go up and down, so direct and indirect property investments are for the long term.

If you are willing to wait, you can ride out any losses in a slow housing market and earn profits again in a better time.

If you are over invested in property for example if most of your money is tied up in buy to let property, you might end up in trouble when the housing markets are slow.

You should always consider diversifying your portfolio with different types of investment. But we would always suggest you speak to a financial advisor.

How to invest in property?

You can buy a property directly. Whether it is you or as a buy to let investment.

You need however to consider the following: –

  1. Your money will be tied up, unlike shares or bonds, it takes a long time to sell a property.
  2. It is a big commitment. When you buy a property, you are putting a lot of eggs into a single basket.
  3. Buying and selling costs – with estate agents and surveyors fees, stamp duty, solicitors and conveyancing fees it is important that you are aware of what the costs will be.
  4. There will be some form of maintenance and management of a property, but we could always help with this for you.

You may wish to use a mortgage or a loan to buy a property and then there are extra risks: –

  1. There is no guarantee that you will earn enough rent to cover the loan repayments
  2. The cost of mortgages might rise.
  3. If you don’t keep up with the repayments, the bank and building society can take the property back. You should always take independent legal advice.

You can invest in property funds.

These are a pooled or a collective property fund where a professional manager collects money from many investors and then invests directly into property or property shares.

Fund managers charge a fee for this service and this will affect your earnings.

There are various types of common funds such as: –

  1. a) Property unit trusts
  2. b) Property investment trusts
  3. c) Offshore property companies
  4. d) Real estate investment trusts commonly known as “REIT”
  5. e) Shares in listed property companies
  6. f) Insurance company property funds

You should always take professional advice before you consider any of the above.

What should I do before I invest in property?

If you want to make any decision about investing in property you should find out as much as you can and take as much information as possible. Research the pros and cons on your own and take advice.

You will also want to look at whether there are different types of investments which might better suit your goals.

Will a Buy to let property investment be right for me?

It might be right for you if you like the following: –

  1. Prefer investments that a far more tangible than stocks and shares
  2. Are willing to tie up money for a long period of time.
  3. Understand that property prices can go down as well as up
  4. Are willing to take the risk that you might not even have profit on your investment
  5. Understanding and accepting the additional risks that can go along with borrowing money to buy a property.
  6. Understanding and accepting the costs and time involved in owning and running a property and the impact that this may have on your potential return.

Owning a buy to let investment is very different from owning your own home. When you become a landlord, you are effectively running a small business and there are various legal responsibilities in this regard.

It is important that you understand these and read our other articles. Especially our Top Tips for Buy to Let Landlords here.

How does a buy to let property investment work?

If you are buying a residential property you can use your own cash or take out a buy to let mortgage with a cash deposit. Please keep in mind that mortgages come with risks so if you need to sell the property for a loss the sale price might not cover all that you own on the mortgage. You would then need to make up the difference.

Once you buy a property you will be looking to earns two ways from it as follows: –

  1. a) Rental yield – this is what your tenant pays in rent minus any maintenance funding costs like repairs and agents fees as well as considering what you paid for it.
  2. b) Capital growth – the profit that you can earn on selling your property for more than what you paid for it.

Buying to let is a big commitment and should never be taken lightly. There are risks and returns that you need to be aware of. Don’t think that it is automatic that the price will go up as well as down. If house prices fall, the value of your property is likely to fall as well, and you might not be able to sell it for as much as you hoped.

The amount of rent can also change and vary according to several factors including the wider market trends which can be outside of your control. Rents are not always guaranteed, and you may not be able to find tenants.

You will also find that access to your money is limited as in effect you already have a mortgage on the property and the back may not be willing to lend you anymore. You might have major repairs or difficult tenants that might increase your costs and you need to be aware of all the pitfalls.

If you are still thinking of investing in property, why not contact our Acquisition Department who deal with all types of investments on behalf of landlords who will be happy to give you thirty-minute free advice.

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