For anyone new to investing that may not have decided on which sector they should invest their money into, below are the top 10 reasons why property should be considered as one of their investments.
1 - Diverse asset class
There are many ways in which to invest in property; whether it is residential, commercial or alternative property investment, such as car parks or marina berths. For those with smaller budgets or "testing the water" REITs (Real Estate Investment Trusts) or property funds are also available.
2 - Tangible asset
The tangible nature brings with it a sense of security. The investor can touch and see exactly where their money has been invested.
3 - Less volatile than other investment markets
Historically the property market is less volatile than investments such as stocks and shares. Stock prices can change in a single day; significant value can be lost within a matter of weeks, whereas the property market has a much slower cycle.
4 - Ability to use leverage (more so than stocks and shares)
Although other investments can be leveraged, property is an investment vehicle that can be leveraged over the longest time span, with the smallest deposit. For example if you were to borrow money to invest in stocks the average maximum percentage of the investment investors can borrow is 50%, so a larger deposit is needed. Mortgages on property can be taken out at 80% of the property price depending on the market at the time of investment. There are a few exceptions, such as currency trading, where leverage of up to 100 times can be available, however these levels of gearing are not without extensive risk exposure (often making it possible to lose many times the value of the initial investment) and will have very short time scales attached.
5 - Ability to increase value
The value of a property can be increased particularly if it is purchased in a bad physical state; by refurbishing the property or extending it the value can go up significantly and a profit can be made if the property is sold after renovation. In contrast there is little you can do as an individual to improve the stock price of Microsoft if you hold a few thousand shares.
6 - No specific training needed, most people can do it
The property market is one of the easiest to understand, as is the purchase process. Information is readily available to research if investors are new to the asset class.
7 - Control: direct ownership means direct control
An investor in property has direct control of the asset, they are able to do what they want with it, when they like. If a Buy to Let investor wishes to increase the rent they charge their tenant, they are able to. Increasing the dividend payout on a stock is another matter entirely!
8 - Ability to insure the property, contents and investment (loss of rent and damage caused by tenants)
Not only can the building and its contents be insured against any damage or loss but so can the investment (so to speak). Landlord insurance allows Buy to Let investors the ability to insure the property against any damage caused by the tenants or against loss of rental income.
9 - No need to sell in order to gain capital
There is no need for an investor to sell the asset in order to buy another one, or if they need the original capital. By releasing equity in the property they can still own it and obtain equity built up in the property.
10 - Peace of mind
Buy to Let investors will receive an income as soon as they have a tenant in place - usually when rental contracts are signed a deposit is placed and the first months rent is paid. Capital growth is another way in which to make money on property. Historically property prices have risen gradually, although there may be a dip in the market at some point it has been proven that property prices do rise in the long term.
- Wednesday 21 July 2010