How to profit from property

There's now two ways about it, investing in property can be an extremely wise investment. Get it right and you could be on your way to making your first million in no time at all.

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Why invest in property?

Why do people invest in property when there are so many other things to invest in: antiques, stocks and shares, currencies, wine etc.

Clearly, the reason that we invest in something (as opposed to just putting our money in the bank or under our beds) is that we want to make a decent return on our money. And property is a good way of realising this investment – certainly over the medium to long term. So what are the key reasons that we invest in property? We all understand property – what it is for and how we can make a return on our investment. We know what people do with property and we know that properties cost money to buy and maintain – we can relate to property very easily and we can see how money can be made, and one thing’s for sure – property won’t go out of fashion because we all need somewhere to live!

Ultimately, statistics show that the value of property has always risen in value over time and the returns are more often than not well above inflation. You need a relatively small deposit to purchase a property and the rest of the money can be borrowed – in other markets, such as currency trading, the opportunity to “own” more value than you have paid is referred to as leverage. For example, you buy a flat for £100,000 and pay a deposit of £20,000 so you’ve got a 5-1 leverage. You then get a tennant in and they pay the mortgage for you, so a £100,000 asset has cost you only £20,000.

There is a finite supply of property and land. This is particularly true in the UK and along with the fairly restrictive planning legislation in place it means that there is a very limitd supply of new property. This limited supply and growing demand is great for property investment because it is a commodity that will continue to increase in value.

What does it mean to invest in property?

When we invest in something we are looking to make a higher than usual return (as opposed to just “saving” our money) and for that reason we accept that there is a higher level of risk i.e.
there is a risk vs reward trade off. Investing in property should not be seen as a guaranteed long-term exercise – if you are going to take it seriously then you have to treat it like a business:

• accept that there is an element of risk

• understand risks and put in place stratgies to mitigate against the risks

• look at the potential to diversify your portfolio into properties abroad, land investments and commercial
property (more about these later)

• do your research – the more you know about your market and your investment the more successful you are likely to be

• Plan your investment – set targets and returns

What opportunities are there?

As we write this guide we’re slap bang in the middle of a slump in property prices and in the demand to buy property, most of this catalysed by events in the USA where the highlevels of sub-prime lending lead to a collapse of many large financial institutions. Why? Because the people borrowing the money could no longer afford to repay the money they borrowed and there was a huge domino rally effect across the
globe. The result of this global domino rally is that, firstly, there is an oversupply of properties (because people have been forced out of them as they can no longer afford to repay the borrowing and, secondly, the banks and financial institutions have tightened up their lending policies; where it was recently possible to borrow 110% of the value of a property through a mortgage most lenders are now demanding a minimum of 20% deposit.

So why does this mean there are opportunities?

• Property is currently cheap and, in some areas, still falling in value – so it’s a buyer market

• There are more people who will have to rent property rather than buy – great news for a property investor with a view to the buy-to-let market

• Although lenders are demanding higher deposits borrowing money is currently relatively cheap due to low interest rates

• As mentioned earlier, over the long-term property will increase in value – so it’s good to buy whilst it is cheap

So if you’ve got money in the bank now’s the time to invest in property!

But what are the downsides I hear you ask?

• Property is not a liquid asset, by that we mean that it is not easy to turn the value of the property into cash very quickly. In some instances it could take months or even years to sell the property.

• The “unit” cost of property is relatively expensive when compared to other investments. Even an expensive stock or share would only run into tens or hundreds of pounds.

• Even with the leverage of a mortgage you still need a substantial deposit to buy property – particularly if it is not your primary residence or your only property

• There are ongoing costs of owning property. In addition to maintenance costs you have to consider how you cover costs in the event that one of your properties lies empty for a while – you still have to pay the gas, electric, council tax, water rates and mortgage!

• The purchase and sale of property is a heavily “administered” transaction. It’s not like buying a car or a
bottle of expensive wine. Solicitors generally need to be involved as too do government agencies such as the Land Registry and HMRC, and there could be land or title issues particularly if the property is being offered on a leasehold basis.

Do the upsides positives outweigh the negatives?

From experience, we know that they do, and once you have read this guide you will already be miles ahead of other 'would be' Property Investors.

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