How to invest in property and never worry about falling house prices
I was once told by a property investor that they invest in property because house prices never go down. That was just before the Global Financial Crisis in 2007/08. Whilst he wasn't wiped out when prices did drop (and they do drop normally one year in ten) he hadn’t heeded probably the best buy-to-let advice I’ve ever received – and that is to invest for cash flow now and in the future.
Why cash flow is the best buy-to-let advice
House prices are like any other asset prices – they go up, and they go down. If you invest purely for capital gain, you’re relying on house prices to rise. Most property experts‘ predictions are embarrassingly wrong, so for the majority of property investors, when they invest in property for capital gain they rely on luck. For me, that’s no way to invest, which is why I invest in property for cash flow.
When you have positive cash flow (which is ideal but not always possible or necessary), it doesn’t matter as much where house prices are heading when you know you can hold the property. They can go up, down, or trundle along sideways, but the result is the same: money coming in and enhancing lifestyle. That’s the single best buy-to-let advice I can give.
You see, property investment with the objective of creating rental income doesn’t rely on capital values rising to increase wealth.
How to invest in property for positive cash flow
The property investor who has done his or her investment research (and invested with good property fundamentals and the backing of regeneration) will benefit from a number of investment factors that other assets don’t exhibit, such as:
Strong demand for rental properties in the private sector
Currently, there are 5 million households in the UK that rent in the private sector. Which is forecasted to rise to 7 million within ten years.
Steadily growing rental income
Over the last 20 years, the average rent in the UK has increased by an average of 3% per year. Underpinned by the demand for rental property, with property investors benefitting in a way that investors in other assets simply don’t.
High demand from foreign property investors
The UK economy is the fifth largest in the world and seen as a great place to invest in property by global investors. And with the recent fall in the value of sterling after the Brexit win in the EU Referendum, the value of property investment for foreign investors just ticked up a few notches.
Massive regeneration programmes are good for property investment
There are large-scale regeneration programmes across the whole country, now and planned for the next 20 years. Crossrail, High Speed Two and Three, the creation of a Northern Powerhouse, and regeneration programmes in commuter towns and across London are just a few examples of the regeneration that amount to tens of billions of funding that is positive for property investment.
The best buy-to-let advice summarised
Invest in property with the knowledge that house prices go up and down. Invest in property that benefits from being in an area that is benefitting from regeneration, and in a property that benefits from being rentable. Then, if you concentrate on rental income and calculating your cash flow, you’ll never have to worry about short-term house price fluctuations – your positive cash flow will pay down the mortgage, and at retirement, you’ll have a box that pays you money.
Give us a call on +44 (0)207 923 6100 and we’ll be happy to offer our experience for your benefit.
PS. There will be times in the cycle when cash flow positive property is not possible but this is usually the times when you have experienced really great capital growth. So remember to weigh you investment objectives with the type of property and cashflow you are after.