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Investing in Property


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.

An ideal portfolio would be a mixture of income generated and growth investments where you can reap the rewards of guaranteed income combined with speculative growth properties that may bring in enough capital to pay of the remaining debt and hopefully a nice lump sum.

 

Investing in property like most types of investments carry potential risks. Uncertainty in the current economy will always leave the property market sensitive to external factors so investors must be aware and take the relevant precaution when investing.