Is Property a good vehicle for investment?
One of the major aspects of property investment over other investment vehicles has always been the power of leverage. Leverage is simple the mechanism of using a small amount of money to control a large amount.
The simple facts are these, if you forget for the moment the techniques used to put little or no money into a deal and simply look at the profitability of a property investment, the numbers stack like this.
Purchase a property valued at £100,000.
In a traditional market you would put 10% deposit down and mortgage 90%.
In this case you would put down £10,000 as a deposit.
This £10,000 is in effect controlling an asset worth £100,000.
If the property grows by 10% that means that the asset is worth £110,000 the property has grown by £10,000 in value, giving you a 100% return on capital.
Now we come to the question about growth in the market as it is today.
Will property go back up in value?
How long will property drop in price?
How much further will it go down?
The answer to all these questions is “I don’t know” what I do know is that I speak to a lot of property professionals and economists, some who have seen this economic cycle before first hand and none of them have a crystal ball and can tell you exact dates, however, every single one of them agree that the market will gain confidence, the market will turn, the market will grow and when it does those who were able to buy now, will make an absolute fortune.
The biggest question is when. That is impossible to say, however, from a professional property investors cynical and “eyes on the numbers” point of view, I have the opinion that I don’t really care when the market turns, it could be a year it could be three years away. The property I’m purchasing at the moment is for the medium to long term anyway. As long as I can ensure I get cash flow from my properties, I know at some stage in the future they will double in value.
Now I'm not here to prove to you that this will happen, it is what I believe, that is why I'm investing in property rught NOW. If you do not believe this will happen then you should not invest in property!!!
We are going through an economic cycle, just as we have in the past and we know it will happen in the future. By positioning yourself right now will provide not only a good residual income now, but also extremely good profit in 5-10 time.
Now if you take the points I have made above and couple them with the sort of prices we are able to get on the property deals at the moment i.e. 25% off the CURRENT Value, (as we all know current values are anything from 15-30% of what they were a couple of years ago) then you can see that NOW is a great time to buy property investment as a vehicle for the future.
Why does property increase in value?
Housing shortage
The UK has a serious shortage of housing supply relative to demand. With house building even before the credit crunch at is lowest for decades, the gap is widening between supply & demand. The treasury report on the housing market by Kate Barker revealed a huge shortfall in new housing units coming onto the market, with recommendations to increase construction to 260,000 units per annum, from the current rate of for 2008 of 75,000 (which is decreasing fast), with this demand, house prices can only increase in the medium to long term.
Immigration
Another factor to demand is the huge levels of immigration into the UK. The office of national statistics show that the population had risen to a new high of 61 million in mid 2007 – an increase of 388,000 on the previous year (1063 a day) staggering. The expectation is that by 2021 the UK population will swell to 65 million, an increase of 1/3 million per annum. So again you can see the demand is great.
Divorce & People living longer
The UK has now much higher divorce rates that in the 1960`s, requiring more housing to accommodate those living alone. People in the UK are now living longer; the country has 11.6 million men & woman of pensionable age. The oldest group, those aged 80+ has rocketed from 1.2 million in 1981 to 2.7 million today.
The Projections
History tells us that property has risen on average 11.74% per year since the 1960’s and although we are going through the credit crunch at the moment, we believe this is a good indicator of what will happen in the future.
We are also realistic in that we understand that this is an average figure, but not necessarily indicative of what could happen on a year-to-year basis. With this in mind, all our calculations are at a level we believe to be realistic; our projections are based on a growth of between 0% to 8.5% per year over the medium to long term.
Most clients take an Equity Release of £29,950 (Total cost for 3properties) out of their home, typically costing £149.00 a month or £4.99 a day for 60 Months.
Please feel free to contact us or take us up on our offer of FREE 1-2-1 consultation.
