You’ve probably heard that investing in property is a good idea. Maybe you even know someone that has done well for themselves with property. But what makes property a good investment, and why might you choose property over other assets?
If you’re struggling to decide where to invest your savings, here are five reasons why bricks and mortar should be your first choice.
Leverage is hugely powerful. It’s the main reason I choose to invest in property over stocks and bonds. Being able to borrow other people’s money (usually the banks) allows you to purchase significantly more assets, which amplifies your returns.
Let’s assume you have £25,000 to invest and are torn between shares or property. Both asset classes offer high growth, and both will double your investment in roughly 10 years (it’s not quite as straightforward, but play along with me for this example).
If you invested £25,000 in shares, in 10 years, you would have £50,000. Not bad. But if you used your £25,000 as a deposit to purchase a £100,000 property, you would have an asset valued at £200,000 in 10 years. After paying back the £75,000 mortgage, you’d be left with £125,000!
£25,000 Vs £125,000 – I know what I would rather have. That’s the power of leverage by using a mortgage to purchase property.
Although it’s possible to buy shares with a loan (a.k.a on margin), it is extremely risky and not recommended. The world’s largest companies and the global stock markets regularly experience corrections of 5% or more in a day, and have even crashed by as much as 22% in a single trading day!
With property, you have direct control over how you manage your investment. Every detail from the neighbourhood you buy in to the colour of paint on the walls is yours to decide.
You can treat buy to let as a business and pay yourself to do the parts of property investing you enjoy or are skilled at, while outsourcing anything you don’t want to do. If you’re prepared to sacrifice your time and work in your business, you can achieve a much greater return on investment.
Or if you want to be a hands-off investor, you can hire professionals to oversee the day-to-day management of your portfolio.
The point is; you’re the boss. You decide how involved you want to be.
Purchasing shares, on the other hand, relinquishes control over to a board of directors and company management. You’re trusting your savings to a business system and hoping that the people running that system can keep growing the business (and your investment).
Call me a control freak, but I like to have a little more influence over my investment.
After you purchase a stock, bond, piece of artwork, precious metal or other investment, there’s not much you can do but let the market do its thing. With prudent investing – and maybe a bit of luck – the value of your investment will rise in time.
But with property investment, there’s an opportunity to add immediate value through renovations. If your handiwork increases the value significantly, then it’s possible to re-mortgage the property and take all of your money back out of the deal.
This property perk is so phenomenal it’s worth repeating:
After you’ve renovated a property, and provided you have added enough value, you can go back to the bank and ask for a new loan based on the higher property value. The funds you receive from the new loan will pay off the original loan plus your deposit, refurb costs, and purchase fees. You now own a property that pays you for life, rises in value, and you didn’t pay a single penny for it.
a.k.a an INFINITE RETURN ON INVESTMENT!!!
Admittedly, pulling all of your cash back out the deal is extremely hard to do, but it is possible. Finding these kind of property deals is what we do.
Not only is it possible to add value to a property by refurbishing it, but you can also purchase property below its market value. Some people would argue that buying property for less than it’s worth isn’t possible as whatever price you paid for the property is, by definition, its market value.
However, that would assume that sellers are completely rational and will hold out until they get the best price possible for their property. NOT TRUE. Sellers are human beings and are therefore influenced by their emotions.
There are many reasons a seller would decide to sell their property for less than its true value; some of them being divorce, death, moving location, or financial difficulties.
There are many ways to invest in property and many different types of properties you could purchase. The two most common reasons, or strategies if you will, are for long-term capital growth and rental income.
I choose to buy properties that are cashflow positive. These high yielding properties have high rent compared to expenses, meaning there is a surplus of cash at the end of the month.
This cash is yours to do with as you please. You could pay down your mortgage, save for another property, invest it elsewhere, or use the money to pay for a holiday or any other lifestyle purchase.
Acquire enough of these cashflow positive properties, and you’ll eventually have enough passive income to replace your salary, allowing you to quit your job and do whatever you want.
Property makes more millionaires than any other type of investment. If you look at the richest people on the planet, you’ll find that many of them either built their wealth through property or choose to store a large proportion of their wealth in property.
With property having so many advantages over other asset classes, it’s no wonder so many investors choose to safeguard and grow their wealth through property.