Safer, cheaper, better returns when you build a property portfolio
I’m often asked by new clients why I personally think that residential investment property is the way to go for every investor. One thing that I really like about building a property portfolio is that it’s a ‘real’ investment. Property is something that I can pass down to my children, and they can pass down to theirs. All the while, it has the potential to provide increasing levels of rental income. It’s the gift that keeps on giving.
Of course, durability is only one of the positives of buying residential investment property. In this post, I’m going to outline four other reasons why it makes sense to build a property portfolio. By the time you finish reading this, you might begin wondering why you’ve invested in anything else.
1. Residential investment property is safer
All markets can go down. And we all remember the recent Global Financial Crisis (GFC) and the Great Recession when every asset fell (the first time that had ever happened). But when the stock market was almost halving, the average UK house price fell by just 14%.
If you look through the history books, stock markets have collapsed approximately every ten years or so. There was a slide in the mid-1970s. Black Monday in 1987. The dot-com bubble in 2000. The GFC in 2008.
The property is less volatile, and that’s great news for property investors.
There’s another level of safety that I love about residential investment property: it’s a tangible asset. Companies go bust, and their shares become worthless every day of the week. Many pension funds are hopelessly underfunded. And cash savings are only guaranteed up to £75,000 – and even then, there are new, little-known laws that could overrule this protection.
Barring an earthquake, volcano, of the mega hurricane, my buy-to-let property is always going to be there.
2. A new build property portfolio is cheaper
Investing in residential property is cheaper to manage. If you take advantage of having your property managed by a professional property manager, you’ll pay about 8% or 10% in fees. But these are paid on the rental collected. If your buy-to-let property is valued at £200,000 and has a rental yield of 7%, you’ll be collecting £14,000 a year in rent. That might cost you £1,400 in management fees.
A stock market fund will typically charge you 2% of your fund value. On a fund of £200,000, that’s £4,000 in charges − and that’s before transaction costs and taxes are taken into account.
3. Residential property can produce income and cash flow from day one
Buy an every person property in the right location, on a residential development benefitting from good infrastructure, regeneration and property fundamentals. You should be able to take advantage of strong demand from a queue of tenants.
Do your research and due diligence, and work through a two-year cash flow plan. With this completed, you can be confident that your residential investments will produce the extra cash flow that will get you to your lifestyle objectives quicker.
This is one of the real big benefits of buying residential investment property – long-term investment properties offer real income and cash flow. You don’t have to rely on capital growth for profit. The excellent long-term capital growth that property has produced consistently throughout history is a bonus.
4. You get to make money on other people’s money
When you invest in residential property, you reap the benefits of leveraging in property investment.
Simply put, you make money on other people’s money. Let’s say you put down a deposit of £50,000 and borrow £150,000 to complete the purchase. You pay interest at 4.5% and get a rental yield of 7%. You make 2.5% on the £150,000 that isn’t yours!
If the residential property investment increases in value, you profit from the total increase. If it increases by 20% (£40,000), then you’ve actually made 80% capital growth on your original investment of £50,000.
Leveraging is the real magic behind successful property investment.
Next time someone asks you why you’re a property investor, tell them the reasons why. You’ll be surprised what others don’t know. Why not contact the team at Gladfish on +44 (0)207 923 6100 today and find out how residential investment property could transform your life?
Live with passion,
Brett Alegre-Wood
