Entries (RSS)Why invest in property?
But before we go any further let’s answer the question:
Is investing in property a good idea?
With the recent falls in house values it’s easy to concentrate on the doom and gloom and suggest the UK buy to let market has had its day.
The Nationwide house price survey shows that for quarter 2 of 2008 the average UK house price was £174,514.
Yes, this is a reduction of £15,000 from the same period in the prior year.
But go back to quarter 2 of 2003 for example. At that stage the average price was £148,949. An average price of £174,514 therefore represents an increase in value of over £25,500 in 5 years.
This is an increase of 3.2% per annum.
Looking back over a 10 year period the average house price has more than doubled from £86,091.
This represents an increase of 7.3% per annum.
How does this compare to investing in the stock market
The FTSE 100 index (the share index of the top 100 companies listed on the London Stock Exchange) has grown at a rate of almost 7% over the last 5 years. But infact compared to 10 years ago there has been a reduction of 0.4% per annum.
We need to put the recent falls in house price in perspective against the large property increases we have seen in earlier years.
Property investment has to be viewed as a medium to long term strategy.
You should consider holding each investment property for a minimum of 7 years, and preferably longer.
This website is not designed to be a “get rich quick” strategy. Its aim is to show you how to get involved in residential buy to let, purchasing investment properties which meet your pre determined criteria, and limit your downside risk as much as possible.
Did you know?
Even if property increases at the same rate of increase as the stock market, the gain to be made from buy to let is more than the gain from the stock market.
Here’s why
To invest £100,000 in the stock market, the cost to you would be £100,000 plus stamp duty at 0.5%. Total investment £100,500.
To invest in a buy to let property valued at £100,000, you would be able to obtain a buy to let mortgage of £75,000. interest on this will be paid by the rent. Therefore you only need a deposit of £25,000 plus other costs of circa £10,000.
You therefore own a property investment worth £100,000 which has cost not £100,500 but £35,000.
Assume both the buy to let property and the stock market increase at 3% per annum. At the end of 10 years you would have made a return on the stock market investment of 29%.
This is certainly a nice return. However, because of the lower investment for the same value of buy to let property you would have made a return on the buy to let of 284%.