A short guide to the pros and cons of property investment
It took some time, but steadily, inexorably, the UK economy has shifted into a new upward economic cycle. The symptoms are consistent economic growth, falling unemployment and, at last, wages increasing in real terms. Not a bad time for considering your investment options then, but what asset type is worthy of your hard earned money?
“If you’re smart and invest in the right areas, you can secure a yield of 12% or more on investment property. Low property prices in areas like Greater Manchester, coupled with robust rents, means an investor can make a very attractive return indeed. Add that to capital appreciation and financial independence could be closer than you think.”
Chris Newman NDEA FRICS RegVal
For fifty years or so many advisors and commentators would have strongly advocated shares. According to lovemoney.com, returns on shares over the fifty years leading up to 2009 would have netted you approximately a 5.2% return every year – £1,000 in 1959 = £12,612 in 2009 – and that’s just with a tracker fund (one which follows the overall progress of the stock market). A much higher return than that could be won by a savvy, selective and well-informed investor.
Today’s market is different, however, and there are now a lot of reasons why property should be considered a safer, more reliable, but equally profitable investment for an intelligent investor. It is unlikely to make you a millionaire on its own, like shares might, but the end-goal for many is financial independence at a low-risk, not wild riches.
Here’s why you might consider property for that goal:
By investing in stocks you leave the growth of your wealth up to a market over which you have no control. Whatever you do, the price of those stocks will rise and fall regardless.
With property, you add value by renovating and adding to it. The market value of your property investment is directly relatable to the amount of work, effort and expertise you put into it.
With the stock market, every investor knows the market price for any given share at all times. The sharing of information makes the market effectively almost ‘perfect’. Thus, however clever an investor you are, you cannot buy a share for less than the next man.
Property, contrastingly, is anything but perfect. Investors can buy a property for 15%, 20% or more below the market value, because contacts, information and personal expertise can give you an advantage in an imperfect market.
Perhaps most important of all is the volatility aspect. Shares are somewhat unpredictable investments with greater liquidity, whilst property is an illiquid asset but relatively stable in comparison.
Referring to our earlier example, two entire decades of those fifty years, 1969-79 and 1999-2009, would have recorded average year on year losses of 2.3% and 1.2% respectively if that £1,000 had been invested in shares. Property, if left completely alone, un-renovated and not including rental income, would only have decreased during the period 1989-99 and then only by -2.4% on average year-on-year. When you factor in the increase in value through renovation and the money brought in through rental incomes, even this is largely nullified.
Historically, well located properties are shown to double in value every 8 to 10 years on average (smartcompany), showing the potential for well-placed investment to accrue attractive levels of income. But it doesn’t have to be a buy-to-sell approach applied, many invest in property to benefit from a reliable rental income stream; a useful dependable income in uncertain times when almost no job is completely safe.
Not convinced? Perhaps this infographic will help put property into perspective:
About the author:
The Right Surveyors are a national group of chartered surveyors, providing an independent, locally based service to our clients in both the private and commercial sectors. We are experts in building defects and property value, don’t hesitate to find out more below:
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