Your five streams of passive profit from property investment

Brett Alegre-Wood
July 1, 2017

Profit from property in ways you never realised existed

When you think of how you profit from property investment, you probably think of capital growth and rental income. But there are other ways that investors profit from residential investment property. Less obvious ways, but equally as important. Each of these profit streams is passive. You don’t have to spend hours per day, every day of the week, slogging away to make this money. It could start flowing from the day you first invest.

1.      Positive cash flow – monthly rental income

If you’ve invested with the numbers, your buy-to-let property should produce positive cash flow. It is the primary goal of many property investors. If passive income is your main aim, do your research and find the best places to invest in property for cash flow. Pay attention to the expenses of owning and maintaining your property. The rental income must be more than these costs – mortgage payments, investment property management, maintenance and repairs, and so on.

Positive cash flow is passive income. If you build a portfolio of properties which each produce positive cash flow, you could earn enough to get out of the rat race.

Positive cash flow isn’t the only way to profit from property. Many investors buy negative cash flow properties and earn from capital growth.

2.      Capital growth

It is the second of the obvious profit streams from property investment. In the UK, the average house price has doubled every eight to ten years. At the beginning of 1997, the average house price in the UK was £55,810. By the end of 2016, this average had increased to £205,937.

When the price of your investment property rises, it’s like having a bank account that pays an incredible interest rate. If you’d have bought that property back in 1997, you would now be sitting on a profit of around £150,000. To see the benefit of this, you will have to withdraw the profits. You can do this by remortgaging your property to release equity, or by selling it.

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Even if your property produces negative cash flow, the capital growth you make could outstrip the expense. If you invest in a property with a negative cash flow of £100 or £200, you are effectively subsidising the property for its value appreciation over a period. While £200 may sound like a lot of money to find each month, over the last 20 years, it would have bought an average of £625 per month in capital gain.

During 2016, the average house price rose from £197,044 to £205,937. This increase of £8,893 is equal to an average of £741 per month. What other investment could you fund monthly with a couple of hundred pounds to make more than £700 pounds per month?

Capital growth is a very powerful profit stream and one that should increase as your portfolio grows. The secret to reaping maximum reward from this capital growth is leveraging your cash to invest in property.

3.      The profit produced by leveraging to invest

When you buy a property using a buy-to-let mortgage, you are using other people’s money to make a profit. Your tenants are paying the mortgage, while you are reaping the benefit of either positive cash flow or capital appreciation. Possibly both.

You might decide to do one of the several things with your positive cash flow. For example, you could pay down the capital owed on your mortgage. Once it has been paid off, you own the property outright. In effect, your tenants just bought it for you!

As the value of your property increases so does your net worth in the form of equity in your property. You could release this equity as a deposit on a second investment property. Now you have doubled your profit potential – all by using other people’s money.

Every penny you make using other people’s money is a penny you would not have made otherwise. And when it comes to property investment, we’re not talking pennies – using other people’s money to invest could make you tens of thousands of pounds in profit (and more).

4.      Protection against inflation

As time passes, the money in your bank account loses value. It will buy less in five years than it does today. It is the effect of inflation. When you invest your money in a property, you protect yourself against inflation. Here’s how this works:

  • Let’s say you buy a property valued at £200,000.
  • You finance the deal with £50,000 of your own money and a buy-to-let interest-only mortgage of £150,000 fixed at 4.5%.
  • Ten years from now, you are still paying the same mortgage
  • But the rent you are charging has increased with inflation.
  • You are netting more rental income.

Your income naturally rises, while the mortgage remains the same. You’ve inflation-proofed your passive income.

You’ve also inflation-proofed your capital. Think about it: that house you could have bought in 1997 for £55,000 is now worth more than £200,000. If you could do that deal today, would you?

5.      A profitable legacy for generation

The final profit stream is one you won’t see, but one that could change the lives of your loved ones in the same way property investment changed your life. Perhaps even more so.

Property is a tangible asset. It’s real. You can touch it. If you structure your financial affairs correctly when you die you could leave a life-changing property portfolio to your loved ones, with all inheritance tax paid by life insurance policies. Imagine being able to give your kids the benefit of multiple streams of profit and monthly income. Your legacy will live for generations, as your children pass your property portfolio to your grandchildren, and so on. All inflation-proofed income. For decades upon decades after you die.

Contact one of the Gladfish team today on +44 (0)207 923 6100, and we’ll be pleased to discuss how to build profits that last more than a lifetime.

Live with passion,

Brett Alegre-Wood


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