Avoid the 7 arguments that will stop you from investing in property
Property investors are often couples who are asymmetrically aligned with the idea of investing. One is gung-ho and wants to jump straight into residential investment property opportunities. The other is super cautious and feels that taking a single penny out of their joint savings account leads to financial ruin. That isn’t a bad thing. Having a calming influence on your team helps to produce a balanced view when investing in property.
I’ve met with couples who’ve seen their current investments underperform for years before the hesitant husband (or wife) has finally decided to ‘take a leap of faith’ and invest in property. I don’t need to explain the benefits of property investment to you, but you may need to convince your partner.
Here, you’ll learn how to overcome the seven most common objections voiced by your hesitant property investment partner.
1. I’m happy with our stock market investments
Over the last five or six years, stock markets have done pretty well. But cast your mind back to 2008, and before that to 2000, and then to 1987, and 1974. Those are the years when investors saw their stock market investments decimated.
In fact, the London stock market, as measured by the FTSE 100 Index, is barely unchanged from the level it reached in 2000 – that’s getting on for 20 years with next to no capital growth.
Stock markets crash every ten years, give or take a couple of years. The property market simply doesn’t work the same way. For sure, there are downturns in the property market; but demand for homes ensures that downturns are short-lived and less violent than stock market crashes. If you’d invested in a property in the UK in 2000, you would have almost quadrupled your money by now – compare that to the less than 10% capital growth on the FTSE 100.
If your partner is worried about a sudden fall in the value of your investment, they should be most worried about it happening to their stock market investments: it’s why even banking tycoons turn their backs on stocks and invest in property.
2. Stock market investment is cheap to own
On the face of it, you're right. But most people don’t know just how expensive stock market investments are. That managed fund your financial advisor put you into? The fund manager probably takes around 1.5% to 2% as a commission from the value of your fund every year. That’s win, lose, or draw – the fund manager gets paid irrespective of your fund performance.
And don’t be fooled by a financial advisor who tells you that kind of commission is value for money – as this article from the Financial Times explains, nearly 9 out of 10 managed funds underperform their basic benchmark. I don’t know about you, but I hate paying for sub-standard performance.
3. Our cash is safe in the bank
A short while ago, some law changes nearly slipped under the radar in the UK. The first was the reduction of guarantees on your cash accounts of £85,000. That’s how much was ‘safe’, had the banking group in which you held your savings collapsed. That’s been cut to £75,000.
But don’t think that even £75,000 is safe. You may remember how depositors and account holders were forced to bail-in to save banks in Cyprus in 2012. Some investors lost 60% of their savings, and still haven’t recovered them. Well, here (and in the EU, and the United States, and Canada) the law has been changed to come into line with what happened in Cyprus. If your bank goes bust, you could lose almost all your cash savings.
4. We can't afford the mortgage on an investment property
One of the beautiful things about property investment is that you get to make money on other people’s money. (Discover how much leverage you should use to build a property portfolio.)
With the right property, keen due diligence, and an excellent buy-to-let mortgage broker on your side, it will be your tenant that pays your mortgage. As you increase the rent you charge, your positive cash flow increases.
5. I’m worried property prices will stagnate
Over the long term, property has been the best-performing asset in the UK, growing at an annual average of more than 8%. You’re not suggesting a property for a short-term punt. It’s a long-term, lifestyle-changing investment, and one which is designed to produce positive cash flow.
Rental yields on UK property have consistently outperformed stock market dividends and the interest on cash accounts. Do the sums, and present them to your partner. What could you do with an extra few hundred pounds every month?
6. You’ll spend all your time managing it
Sure, if you want to be a stressed out landlord, that’s exactly what will happen. If you want to make an investment and use property investment management services to look after your investment property for you, there is no reason for you to get involved in the day-to-day business of property management and being a landlord. Your time is your own. You won't spend any time managing your investment property it at all.
7. Investment property management charges will wipe out any profits
Investment property management isn’t free, but it’s not expensive either. You’ll be budgeting around 10% of your gross rental income to cover the costs of property management. Let’s say you own a property valued at £200,000, which produces a gross rental yield of 6% – or £1,000 per month. Property management will cost £100 per month.
Your stock market fund, charged at 1.5% of value, and assuming it is valued at £200,000 too, will cost £250 per month in management charges. Lower charges translate to a better net performance, on income and capital growth.
Summarise benefits of property investment
Could your partner argue against the arguments against their objections? Why not summarise them:
- Historically higher long-term capital growth than the stock market
- Higher rental yield than dividend yields
- Lower management charges, aiding growth and income potential
- Lower likelihood of a crash in values
- A ‘Set and Forget’ investment that releases time
- Positive cash flow could eventually replace wages
Contact one of our team today on +44 (0)207 923 6100, and book a meeting. Bring your partner along, and we’ll help to explain all the benefits of property investment, and how the Gladfish process will help you invest in a Set and Forget property investment designed for capital growth and cash flow. (We've even toys in the office for the little ones)
Live with Passion
Brett Alegre-Wood
