When it comes to putting your money away, it can be nearly impossible to know which option will give you the greatest return. Whether you’re looking for long term growth or short-term gain, we’re here to make it simple for you – property is the way to go.
A lot of people will assume it’s better and safer to put your money into a savings account or ISA, as this is the lesson we get taught as children – save, save, save. The problem with this is that, depending how long you expect it to stay in there, your money will probably decrease in value. This is because inflation is usually higher than interest rates (even on high interest accounts) meaning in 5, 10, 30 years’ time, your money will be worth less than it is today. The current rate of inflation is around 10%, whilst banks are at 3% and high interest accounts closer to 5%.
This is a loss of between 5 and 7% YoY!
Another myth that gets drilled into us as children is the importance of pensions, as they are seen as the holy grail for setting ourselves up for retirement. Of course, we are certainly not suggesting you stop paying into a pension and solely rely on property, but we firmly believe there’s space for both to work alongside each other.
The minimum contribution in the UK is 8% of your salary per year – often starting at 5% being paid in by you and 3% by your employer. Many people opt to pay in more, especially higher earners, but this is where we think property comes in. Instead of upping your monthly contribution or paying big chunks, if you put the money into property then not only are you benefitting from the long-term effects of capital gain, but you’re also getting a rental income every month. Of course, you would need to pay income tax if you wanted to add this money to your salary, however if you set up a limited company and don’t touch the profits, you would only have to pay corporation tax of 19% AND you could continue to re-invest this money into further properties. Once the snowball effect takes hold, you could save money at a rapid rate and potentially look to retire sooner than you would’ve done otherwise. In addition, there’s no minimum age for you to benefit financially from property investment like there is with a pension, and you can access your money whenever you choose.
According to The Times, the FTSE 100 has fallen by 8% since the beginning of 2022, and the FTSE 250 (which is made up of smaller UK companies) is also performing badly – the index is down 245%! Although some may argue this makes it the perfect time to buy and invest as prices are low, there is a huge amount of uncertainty in the stocks market right now due to the concerns of how inflation and the cost-of-living crisis will impact these companies. Another worry with investing in shares is the danger that your share’s value could plummet overnight. In the 2008 recession, it took 16 months for the average property value to decrease by 20%, however the FTSE 100 plunged by 8.85% in just one day!
Control
If you’re looking for more control over your investment, property definitely comes out on top. You can’t control how well a company performs if you owned shares; you can’t control the interest rates if your money is in a bank account; you can’t determine your company’s contribution to your pension. You CAN however, control where and when you buy a property, when and if you wish to sell, how much rent you charge, and the condition in which your asset is kept. You are the one who determines when you buy, where you buy, and when you want to sell – this can all be reliably based on market trends and historic data such as the property cycle. There is an abundance of data on sites such as Hometrack and Zoopla that the public can access, as well as support from property consultants like us who are experts in the field.
When you invest in property, you not only have somewhere safe to keep your money, but you also have means to an extra income – rent. One thing that’s often mis-represented is how easy it is to be a landlord and the supposed ‘red tape’ involved. With a property management company by your side, it couldn’t be easier to let out and upkeep your portfolio. If you choose to self-manage, there are tonnes of resources online to support you and ensure you’re doing everything by the book.
A lot of people believe that investing in property is for the cash-rich, and there’s a huge pressure on people to own their properties outright. But why? Why would you invest all your money into one asset when you could spread it across multiple? Buy to let mortgages ask for a deposit of at least 20% and they ask for your rental income to cover 125% of the mortgage repayments. Most BTL mortgages are interest only, therefore, other than your initial deposit, fees and SDLT, you should usually be getting a profit every month if you choose the right property. Instead of putting a huge lump-sum into one property, leverage and use mortgages to buy multiple. This way, you have more security as your eggs aren’t all in one basket so to speak, and you can capitalise from each one.
The biggest risk associated with buying property is the risk that you are forced to sell when the timing is wrong and you end up in negative equity, so it’s important to make sure you’re doing the research and stress-testing your investments first. Get the appropriate advice and talk to an expert if you’re starting out, and there’s no reason property investment can’t work for you too!
