While there are plenty of other ways to invest your money (stock market trading, becoming a business angel, starting your own business, etc.) it is widely acknowledged that property is one of the best investments for your money. Property has long been a safe way to invest – whereas other means will need you to have specialist knowledge of one sort or another, investing in property is accessible to anyone who can get a mortgage.
One of the main reasons property tends to give such a good return is that in most situations it is considered a long-term investment. Although accessible to anyone with a mortgage, buying property is a stressful and long winded process and is generally not done on a whim. This means that you’re less likely to panic if prices drop and will just hang onto your property, however long it takes, until it is valued at enough to make it worth your while going through the hassle of reselling it. Compare this with stock market trading, or business investment, where the minute share prices drop there is mass panic which then causes the prices to drop even further.
Apart from the fact that it is much a much more arduous process to buy and sell property than it is to buy and sell shares, this is also partly because a building is a physical asset. So even if its value drops dramatically, it can still be lived or worked in, whether by the property owner or by tenants. If someone buys a house to live in and five years later it is valued at less than they paid for it, chances are they will just decide to stay in the house until it eventually exceeds the price originally paid.
Another reason property is such a good investment is that you can leverage your borrowing power to increase your returns. For example when you are able to invest a certain amount and get a mortgage so that you can buy a property worth a lot more than that, if the value rises by 20% the amount you have to repay doesn’t, so you make 20% on the whole price paid for the house, not just the smaller proportion you invested.
Making improvements can also increase your investment
It generally also holds true that any further improvements you make to a property will bring back a return greater than what you invested in them. For instance if you buy a ‘fixer upper’ house, the amount it costs you to restore and modernise it will usually be less than the amount it increases the home’s value by. Similarly adding an extra room, or doing a loft conversion, will add more value over time than it costs you to get the work done. This applies as a landlord too – if you upgrade the home you are renting out, over the longer term the extra rent you are able to charge for it could more than make up for the initial investment.
Taking all this into account makes it hard to argue against property investment being a good idea. Despite the fact that there will be price crashes and fluctuations in both residential and commercial properties, as long as you are in it for the long run property is and is likely to remain one of the best investments you can make.
