Why property? Many invest in property because it gives them an income and a pension pot, but it’s more than that. It suits their lifestyle, work ethic, skills, risk profile, personality, tax situation and inheritance plans for their children – and these are all things you need to consider carefully. You need to find financial professionals who can advise you properly but or now, let’s simply say that you will need some significant capital behind you if you’re serious about building a portfolio (I’d suggest at least £50,000 for each property you intend to buy) and I’d stress the importance of speaking to a wealth advisor. They can look at all your financial interests and plans for the future and help you decide the best way to invest in property to suit your own, personal situation – and whether property is even the right investment vehicle for you.
What I can do is explain why I chose property. Quite simply, it offers the most reliable, tangible, flexible, profitable form of investment I’ve been able to find, and I can break that down into six key aspects:
1. Leverage. No other asset class offers the opportunity to leverage in the way that property does. Banks and building societies lend against property at the level they do because property is seen as having a fundamental ‘bricks & mortar’ value. Markets peek and trough but a property will almost always hold a certain level of value, so while maximum Loan to Value rates may fluctuate (in the past 8 years, I’ve seen them fall from 125% to 60% and go back to 85%), you can still leverage other people’s money to make a better return on capital than you might otherwise – i.e. you can make your money go further. For example, if there was a 15% rise across all markets: £100k invested in stocks = £15k growth £100k invested in £25k deposits on 4 properties, each worth £100k = £60k growth
2. Refinancing. The ability to refinance a property, as an extension to leverage, means you can end up with an income-producing asset that has none of your own capital tied up in it. You can’t achieve this as quickly and easily as you once could, but if you manage to buy a property at a good price and that particular sector of the market rises sufficiently, you should be able to remortgage in time and release the money you originally invested. By reinvesting that money in another income-producing property, you’re expanding your portfolio and maximising the return on your capital.
3. Income. With all other asset classes, you mainly profit from growth on the capital. Although there may be interest payments on other types of investment, I haven’t found any that offer the same income potential as property.
4. Control. Unlike most other forms of investment, such as stocks or bonds, you have a high degree of control over the investment returns a property provides. While you can’t control either the property market as a whole or mortgage rates, you do have the power to decide: the type of property you buy what mortgage product you have how you let the property the type of tenants you accept the rent you charge (to a certain extent) how much you spend on managing and maintaining the property Essentially, you have a high degree of control over income and expenditure, and, therefore, profitability.
5. Opportunity. The diversity of opportunity to make money from property is really exciting to me, and is one of the reasons it’s used by so many people as a wealth creation tool. Whether you want on-going income, short/medium-term gain, a pension plan, a home for your children in years to come or a lump sum return in the future, property can work for you. You can buy to let single or multiple occupancy units; renovate a property and then sell or remortgage; self build or develop yourself; strike a deal to sell property or land to a developer; get paid for sourcing property; do everything yourself and make it your career, or work with other people to make it a more passive investment… It really does offer a huge variety of options – even one property can allow you to realise different returns at different times in your life, depending on what you need and when.
6. Systemisation. This is a big part of why property works as an investment vehicle for me. If you can put the right systems and team in place to effectively source, acquire, refurbish, let and manage a portfolio, you can reap considerable financial rewards for relatively little of your own time. That frees you up to either focus on high-value aspects of your business, or simply to enjoy some of your lifestyle activities. I said earlier that property is a business, and you need to have the ability to establish and manage a ‘head office’ in a way that works for you. But as long as you can do that, your systemised business should be able to function as a money-earner whether you’re there or not.