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Investing in property is often viewed as a stable
and attractive place to put your hard earned cash. However in the last five
years, the property market has seen some turbulent times, where some
investors were faced with uncertainty while others reaped the rewards.
Property investment can be both highly rewarding
and challenging and could be an efficient method of using your assets to
benefit you in future. Current rates for savings accounts on the whole are
not very appealing; the stock market has its drawbacks so the best
alternative is ‘bricks and mortar’.
You should always treat property as a long term
investment in order to reduce risk and maximise potential gains. That way you
have more of a chance to overcome any upset that may happen in the property
market.
Is Property Investment right for you?
Property investment is not for everyone. There
are many factors that you will need to consider with the most important one
being your long term plan and goals.
We mentioned above that property is a long term
investment. If you are prepared to leave your cash in for a number of years
then this could be the right investment. However, if for example you need to
use your cash in a year time then property may not be the smartest place to
leave your cash. Although on some occasions you could make a quick buck from a
speculative property investments and this can be seen as high risk strategy.
Unless of course you are a seasoned professional investor who can spot a
deal, act on it and then move it on for profit.
The majority of people who invest in property do
so with the aim of securing a debt-free and secure income in retirement. With
careful planning, an investor can maximize their investment to cater for
their retirement. Every investor is different and you need to create a plan
based on your personal circumstances, income level and the amount of capital
you have to start with.
Your plan must be realistic and achievable. Start
with a modest level of income in mind, increase and improve on this as you
become more comfortable with investing.
Income and Growth Investments
There
are two main strategies an investor may undertake when deciding on his/her
long term goals. They could either be Income or Growth, and to balance their
portfolio even a combination of the two.
Income
Generating Investments
These
are primarily purchased to generate long term reliable income or yield. The
yield is the annual return you are likely to get on your investment. It is
generally calculated annually as a percentage over the cost of the property.
A property that is producing high yields in a robust tenant driven market can
be seen as a very efficient income producing investment.
Traditionally,
the value of income generating property is governed by the yield. If the
yield goes up the capital value will reflect this and also increase in value.
Commercial properties such as shops, offices, industrial units and semi
commercial properties including student accommodation and hotels all fall
under this type of investment strategy. Residential Ground Rents are another
type that is favoured amongst those looking for income generating
investments.
These
types of investments are generally bought to provide a secure and hassle free
income where the investor is looking for a solid long term investment with
minimal hands on management providing an attractive net yield.
The
resale of the property would be less important because they would rely on the
income generated with a view for this to increase over time. The key to
investment is that it must generate strong yield to service mortgage and
other costs associated with the property.
A good
source to locate income generating properties would be the auctions and
commercial agents. You can search our website and view properties that are
geared to investment purposes.
Growth
Investment
A
growth investment strategy will be aiming for the capital value of the
property to increase over time combined with a relatively strong rental
income.
The investors
looking for growth are usually purchasing a speculative investment in order
to make long term capital gains whilst rental income covers mortgage
payments, on-going management and maintenance costs.
The
UK residential market is a strong area where investors will look for a growth
strategy. The residential market has seen high growth rates over the long
term and although the yields are not as high as the commercial sector, the
capital value has appreciated well.
Even
with the setbacks in the housing market and the economy in general,
residential house prices have fared well with investors making strong gains especially
since government incentives have been introduced.
With
today’s booming rental market, shortage of available housing and low interest
rates investors are generating high rental yields with the benefit of rising
house prices. However interest rates will inevitably start to rise and this
is where investors should take caution as the rental yields achieved should
be high enough to service the mortgage and other management costs.
Whatever
strategy you opt for it is important that they are in line with your long
term goals. The key is to have a balanced portfolio that reflects your risk
profile and investment timescale. Whatever strategy you opt for, it is
important that they are in line with your long term goals. The key is to have
a balanced portfolio that reflects your risk profile and investment
timescale.
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