Taking a critical look at the Times Rich List, it can be deduced that 60% of people on the list grew and protected their wealth through property investments while the remaining 40% actually created their wealth from the scratch through investing in properties. Without doubt, property investments have produced more wealthy people than any other form of investments you can think of.
So, why do you need to invest in property?
More than ever before, the residents of the UK are living longer and it has put lots of pressure on the government in providing substantial and adequate retirement packages. Coincidentally, the saving returns on bank investments are lower than ever before and the insufficiency of pension schemes is increasing day after day. Except we start finding solutions to our future, the need for people to work after the normal retirement age will become the order of the day and this will bring a significant fall in our standard of living as we age.
In order to avoid working after the normal retirement age, people often make a choice out of the following:
- Stock market investment
- Property investment
- Setting up a new business
When we consider the 3 options to choose from, our experience has shown that property investment provides higher return and lower risk, and it can be completely done without constant involvement. The popularity and glamour of the UK being a place to reside is the major reason behind these benefits of property investments over other investments. Being consistently populated islands, land in the UK is limited; hence, the demand for properties and cost of owing them will always increase.
Buy to let property – the most financially rewarding asset
Any investor that invested in buy to let property in the mid 1990s would have enjoyed returns of as much as 1400% on their property investments, which means that someone who invested as little as £2000 would have gained as much as £29,794 in today’s current value. A research was done in April 2015 and the researchers compared government bonds, UK shares, commercial property, cash ISAs and other investments to buy to let property investments, and it was revealed that buy to let property is the most financially rewarding asset anybody could invest in.
What would you experience if you invested in shares?
An obvious reason for the good performance of property investments is the possibility of using money that belongs to other people to invest through the use of mortgage or other form of lending processes. Investing £100,000, for instance, would buy shares that are worth about £100,000 and if the shares fared well at the rate of 7% each year, the return on the investments would be worth about £196,716 after a total of 10 years. Therefore, a return of almost 100% has been gotten from the investments.
What would you get back if the same amount was put into buy to let property investment?
Let us consider if the same amount of about £100,000 was put into buy to let property investments; property that would be worth about £320,000 would be purchased through the use of a mortgage or any related lending facility. Assuming that the market increases at a value of 7% each year (though property market increases at a significantly higher rate), the value of the property would have increased to about £629,488 after just 10 years. There would have been a return of 500% on the investments and the return would be estimated at approximately £530,000 from an initial investments of £100,000.
In the instance given above, consideration must be given to the rate of interest that will be paid on the money borrowed; however, money paid by tenants of the property will actually make up for the interest and there will also be more income than we actually accounted for in that example. This simply shows that the value of the investments would have become higher over time and there would have been an improvement in the income and lifestyle of the investors.
As long as the property is located in an area with high demand for rent such as areas close to bars, restaurants, beach, business centre, good transport link, schools and offices, it will be rented out to tenants on regular basis.
Another example would be investing £200,000 on property with a yield of 8% annually. This means that £16,000 (£1334 each month) would be gained every year on rent. Since this property would be offered on mortgage, only 25% (which is only £50,000) would be needed to kick off the investment with the remaining 75% (that is £150,000) borrowed. There would be an interest rate of 4% on the borrowed money; this means £500 monthly (£6000 each year). To consider how much would be made each month, there is need for us to subtract the mortgage payment that would be made each month (£500) and an assumed monthly cost of £150 from the income gotten from rent (£1334). That would give us £684 per month on each property. Assuming we have a property portfolio of five properties, that would give us £3420 as income every month without even considering the substantial capital growth that would be available.
While financial benefits can be easily cited as the most common reason for investing in property, there are also other reasons that you can consider to invest in property:
- To get high return on capitals
- To get an interest rate that is much higher than just saving the money in the bank
- To improve your standard of living as well as your lifestyle
- To secure a financially buoyant future for your children
- To make an investment that requires little or no input from you
- To make investment that is safe and secure with low risk chances
- To secure a good post-retirement life through a successfully built property portfolio
- To get interest rate that is much higher than those offered by ISA, bonds, banks etc
For you to device a rewarding property investment strategy and also put in effort to achieve your targets, you must know why you want to go into property investment.