Few investments offer the simplicity, leverage and potential returns of property.
Simplicity of property
Investing in property is different to investing in stocks and bonds. While the Stock Market can offer high potential returns, it can also be a risky and volatile place, with share prices capable of changing on a second by second basis. Whilst there is still risk inherent in buying property abroad, this can be lessened. As a buyer you should be conducting the right level of due diligence at the outset and you can reduce risk further by buying ready-built property, as opposed to off-plan.
Leverage - gearing property for returns
Few investments allow you to use a mortgage to buy an asset, thereby giving you a larger pot of money to buy a larger asset. This ultimately offers higher returns on an initial investment. In addition, it is possible to repay this loan with rental income.
Growth for returns - through property
Property has other important attributes that differentiate it from other forms of investment and which add to its attractiveness:
The value of a property generally rises in line with, or in excess of inflation, as a result of market and economic drivers
As the owner of a property, you can often influence its capital growth and rental return by renovation or refurbishment
The right property is capable of producing strong regular cash flows from rental income (this would be the equivalent of dividends for stocks)
The movements in property value do not necessarily correlate with movement in bond and equity prices, so can complement each other as part of a portfolio.
Over a 10 year period property prices can rise by up to 100% or more, which averages out at 10% p.a. Savings rates, on the other hand, generally deliver nominal or negative returns after inflation has been deducted, largely as a result of lower interest rates, particularly for higher rate tax payers.
Some commodities, such as oil and gold, have hit record prices, but are subject to different market forces e.g. OPEC oil price crises. And like stocks and shares, the prices can go down as quickly as they have risen.
Property - a source of future investment funds to generate more returns
As a property owner, it is possible to release equity against a property, often providing the ability to fund your next purchase. This can also be a tax efficient way of building wealth. When money is released to crystallise profits this could be taxed, whereas if money is released to fund further investments, it does not tend to be treated in the same way.
So, whilst the value of a stock market investment can go down as well as up, (as can property values), it is usual that a well-maintained property, in the right location, will appreciate in value.
Property investment is affected by global economic trends, like other forms of investment, as well as local country factors, which can alter how the investment is managed, for example - variables in leasehold, freehold, taxation and local land law.
To avoid the many pitfalls, which do vary from country to country, it is best to be as well-informed as possible, prior to making any financial commitment.
The independence of property from the performance of other major asset classes, allows it to act as a ‘hedge' or protection against falling stock markets. This is a strong reason why property could play a role in any balanced, investment portfolio.
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