Property has been the favoured form of many investors for decades.
But with the recent changes to taxes and mortgages for the buy-to-let market, investing in property has become a little more challenging. This naturally may lead you to wonder: is it still a good investment?
The answer is a resounding: YES!
Property has many benefits, both for short-term and long-term investment prospects, when compared to other potential investment routes.
The Benefits of Property Investment
Firstly, property generally offers a good level of capital appreciation over time. This is a pretty reliable way to grow your savings. Even if property prices go down for a short period, they will almost certainly go up again.
You also have the advantage an ongoing rental income – so you have short-term and long-term gain from your asset. How many other forms of investment offer this dual value?
With a physical asset, you also have the option of using it yourself if and when you need it, as a holiday home, as a flat for your child to live in whilst at university or to live in yourself at any time.
Another plus is that a property investment can work as a pension fund, providing an annual rental income that can be used or saved, before being sold so you can live off the enhanced capital during retirement.
But how does it stand up against other forms of investment?
Property vs Savings
One down-side to any property investment is that having your money tied up in a physical asset means you don’t have immediate access to it in an emergency. A savings account or an easy-access cash ISA can provide that instant availability. But it comes at a cost – there is a trade-off between easy access to your cash and higher returns.
Buy-to-let typically offers anywhere between 3%-10% yields in rent in the UK, depending of course on the type of property and the area it’s in. That is a far higher return on investment than any savings/ISA account currently available. The most generous UK savings account on the market at present is with Masthaven and provides 2.01% (AER) interest fixed for 5 years, while Paragon Bank’s 5 Year Fixed Rate Cash ISA offers a measly 1.60% interest (AER). You could also potentially gain more from a Stocks and Shares ISA, but these are an inherently riskier type of investment.
Which brings us to Stocks and Shares themselves.
Property vs Stocks and Shares
As with a Stocks and Shares ISA, investing in the stock market directly could potentially give you higher returns than a simple property investment. But the markets are notoriously unpredictable and more directly influenced by political and economic turmoil than the property market. This means you can never be too sure just how much you can earn from your investment, and there’s a distinct possibility that you could lose your capital rather quickly. If you are a more risk-adverse person, stocks and shares probably aren’t the right option for you. But if you can afford to take the risk, the potential gains may perhaps be worth it.
Although there are even higher-risk forms of investment, such as hedge funds.
Property vs Hedge Funds
Hedge funds are an alternative investment prospect that pools the money of a group to invest aggressively in numerous areas in order to produce particularly high returns. As with investing in the stock market, hedge funds involve a significant amount of risk to your capital. With this, though, can come higher rewards, particularly if the manager of your hedge fund is acutely attune to current investment possibilities.
However, as with any investment there is a catch. Hedge funds are usually only open to accredited investors and therefore aren’t accessible as an everyday investment opportunity. So regardless of how much you have to invest, if you aren’t accredited, your best bet is still likely to be property.
Despite a tumultuous year in the world of politics and the economic markets, property still presents the safest and most lucrative option for most investors. At the end of the day it’s a relatively flexible and tangible asset that even in the worst of cases can be passed down to relatives and loved ones.
If you found this article useful, you may also be interested in reading Changes to Lettings Agency Fees: What You Need to Know and How Property Investment Can Help Fund Your Child’s University Education.