Why other investments are no competition to property investment
When I first started investing in property, I did so for a number of reasons. These included the fact that property investment is easier to understand than other investments.
With stocks and bonds, it’s all about balance sheets, forward ratios, price-to-earnings multiples… I’m sure you get where I’m coming from. So, for me, investing in property was (and still, is) easier to get my head around. But this wasn’t the only reason I decided to set my stall out as a property investor. Here are seven other reasons why property investment beats all others:
1. I’m in control, but others do the work
Being a property investor gives me the ultimate control. When I was investing in the stock market, I always felt that my investment was in someone else’s hands: the management and employees of the company I’d invested in. Investing in property is different.
Even though I hand the property management side of things over to a company that’s better equipped than me to do the job, I’m the one in control of my fate. It’s a bit like changing the water boiler at home – I’d never do that myself, I’d get a professional in.
2. The rental income pays better dividends
When you look at the income, you get on stocks, or government bonds or cash accounts, property beats all of these into a cocked hat. Quite frankly, I was getting bored taking my 3% or 4% dividend from stocks, and leaving my cash in the bank just meant I was losing out to inflation.
With property investment, I can set the rent I want to charge (in line with the market, of course) and manage my costs around that. Generally, I make around 5% to 7% gross rental yield, or three times the dividend yield on UK stocks.
Sure I have a mortgage to pay, and factor in, but remember I was able to control a much bigger property with a mortgage than if I paid cash with my deposit (and my capital growth is on the whole value) so overall I am still making this 5 – 7% on my deposit amount.
3. Fantastic capital gains
Property is always in demand. There’s an undersupply of homes all around the world, and even when the market turns down (as it did after the Global Financial Crisis) the property market bounces back quickly when you buy with fundamentals.
And, in comparison to the stock market again, property investment had given me a capital gain over the last 20 years that stock market investors can only dream about (as I wrote about when I discussed the ). In fact, had I stayed invested in stocks all that time and suffered the capital loss they’ve produced, my retirement would still be way out beyond the horizon of my future.
4. I get to leave my kids something real
You know, when I do depart this world, I want to leave my kids a real legacy. A property portfolio does that. It provides shelter to families, and will give my kids an income that a wedge of life insurance money or a pile of stock certificates can’t. (By the way, I’m not advocating for no life insurance – quite the opposite, you need life insurance.)
A portfolio of property investments will give my children something on which they can build a future for them and their children, and their children’s children.
5. I get the government to help me when investing in property
Okay, so the government doesn’t actually give me investment advice (who would want its advice on money, anyway?) and nor does it give me a handful of used tenners to put towards the mortgage payments on my property investment. What it does do is provide a way for me to reduce my income tax bill on my income. If you want to know how to get the government’s help to pay for your property investment, take a note out of the professional property investor’s book and claim for every tax deductible you can.
6. Gearing powers my profits
Just like driving a car, when you’re investing in property you get to benefit from something called ‘gearing’. The engine power is the same, but when you move up a gear, it has to work less hard to move the car faster. For example, if you want to invest in the stock market or government bonds and you have £20,000, and the market rises by 10%, you’ll make £2,000.
But if you use that £20,000 as a deposit and borrow £80,000 to buy a £100,000 property, when that property rises by 10% you’ll make £10,000 – or a 50% return! That’s a huge plus for property investment.
7. Anyone can be an expert property investor
You don’t need a degree to be an expert property investor. What you need is an interest, and:
- a tried and tested research strategy,
- a conservative method of controlling cash flow; (we call this cash flow discipline) and
- a solid property investment strategy.
How did you start investing in property? Have you been investing in other assets and become disappointed by fading retirement plans?
Drop me a line and let me know of your experiences, or give the team a call on+44 (0)207 923 6100 if you’d like to know about the latest property investment opportunities we’ve identified.
Cheers,
David Lines
