In this article we are going to talk about the reasons why property investment is such an amazing investment choice.
However, before we begin, lets define property investment.
Property investment involves investing in purchasing a property asset to receive a consistent rate of return.
Examples of property investment include:
-buying a house and renting it out
-buying an apartment and renting it out
-buying a piece of land and leaving it to increase in value
-buying a derelict property and leaving it to increase in value
In property investment no problem is solved or no value is added to property. Once you solve a problem or add value to a property you are developing a property. Generally property development involves construction and property investment does not involve construction. Property investment will require some asset maintenance but it still does not make it property development.
We define property development as an economic activity which solves a problem or increases value to a fixed asset. Examples of property development include:
-purchasing a decaying house and refurbishing it and selling it to a young family
-buying some agricultural land and obtaining planning permission for something that is needed in the community e.g. a school, shop or houses
-investing in a piece of land or property and building something of greater value – for example buying an old house, demolishing the house and installing twenty new apartments
There are several advantages of property investment
We all invest so that we can receive a good rate of return on our original investment.
In property investment you are NOT solving a problem or adding value to a property. The risk level is relatively low. The market does not really need you to buy a property and rent it out so the market will not reward you handsomely. Instead you will be rewarded with the monthly rental income and possible capital growth each year.
For example you buy a house in a mid market neighbourhood which is very popular with students and young professionals. You rent the property out to some of these professionals or students.
The market will reward you reasonably for buying the property and renting it out but your return will not be sensational. And lets face it, why would you be rewarded more?
Your rate of return will be better than what you get in a savings account but less than from investing in property development, or starting a new business etc, stocks and shares. The market rewards you for the value you bring to the market.
Property and real estate are safe investments, if you invest correctly.
Of course the prices of property and real estate can go up and down but it is a fact that property prices increase over time.
This is because of inflation. Every year the value of goods and services increases by about 2%. This means that over time the value of your property investment also increases while the value of your cash decreases.
If you can take in rents on your property then you get the benefits of this inflation increase plus the cash from the rents.
Of course, if you buy a property using debt and you are not taking in enough rent to cover your monthly payments then this is a terrible investment. So you must do your maths before you invest and ensure that you can pay back the banks each month even if interest rates increase. Interest rates could easily climb to 20% so would you be able to pay back your mortgages each month?
The problem with new property investors is that they get scared when the price of their property plummets and they want to sell and cut their losses.
History shows that if you hang in there your property price will rebound. Just give it time and keep renting it out.
If you own stocks and shares or bitcoin you own something that is shown on a piece of paper or on a computer screen. One day someone tells you it is worth £100,000 and the next day it is worth £20,000 and you don’t really know why. If you own real estate and you rent these properties out you know exactly how much money you earn every month and can work out the value of the property. If the stock or indeed the property market crashes tomorrow then you still own a property to live in or to rent or to run a business from.
If you take out all the talk and analysis, Property investment basically involves buying a property and renting it out for the long-term. After thirty years you will have benefitted from the capital growth in the value of the asset and it will still be generating a return each month. There are no great skills required to invest in property. Anyone can do it.
Property investment builds a group of assets that rise in value every year but also produce a constant rate of return. The idea of property investment is that once you decide to stop working you can have this great set of assets that pays you every month. And then when you kick the bucket your family can receive that benefit.
If you pursue an aggressive property investment strategy it is very possible to retire early. Some people can retire in their thirties and forties just because they worked hard and invested aggressively in their twenties.
At the property development course we pride ourselves on giving you every angle of the story. There are of course disadvantages of property investment:
If you take £100,000 from your successful business and invest it in property you are preventing that £100,000 growing within your business. You could have used that money to expand your business and make ten times what you will make in property. An example of this is Mark Zuckerberg – why would he sell shares in Facebook to invest in property and real estate as an investment when his shares make him so much money each year.
Property investors generally make a rate of return every year.
This means that if you invest £1,000,000 in buying apartment and renting them out you will receive between £50,000 and £100,000 return each year.
This is good but in property development you want to be seeing a return of £300,000 or more and within a shorter time frame than a year.
Yes, you are providing a place for people to live like students and young professionals.
But you are not the one providing the property. You did not buy the land and build the property.
The property was there before you came. You just bought it and are renting it out.
So there is no change to your community.
If anything, by buying this property you took a property from a first time buyer like a young couple.
Also, people who rent properties short-term are simply not invested in the community. Why would they be? If you are renting in one part of the city you are less likely to care about local politics or community because you probably will end up living in another part of the city.
So being a landlord does not really help out a community.
If you have a real estate portfolio we hope you are renting it out and taking in an income. We do not want to hear you have several properties around the globe and are not renting them out. But even if you do rent them out you still have to manage the properties and the tenants.This is a lot of work so make sure you include the cost of subcontracting out this management to an agency in your feasibility plans.
Property investors are rewarded for buying a property by capital growth caused by non-market forces – e.g. government tax incentives cause an increase in the demand for property as an investment option leading to higher prices.
Government policy and taxation policy can change at a whim. Their new polices or legislation might damage your investments. But such is life. And politicians generally want to please investors or they will risk losing their seats.
We recommend you invest in property for the long-term. If you keep buying and selling property every five years you will of course we at the mercy of short-term rises and crashes in the property cycle. Over thirty years the price of property will rise and fall, much like any asset class. The trick is to never sell and just keeping receiving that sweet sweet monthly income. History shows that property prices rise over the long-term. For example how much did your parents pay for their house and how much is it worth today?