Investing in Property in Good and Bad Times

Property has always been an essential part of any serious investors' investment portfolio. In fact, many have realized the benefits of owning property over the long-term. Indeed, information provided by the Times Rich List shows that over 50% of the rich list made their money in property.

Below are some of the factors that make property a wise choice:

Stock market instability. Many investors have become hesitant to put more money in the stock market over recent years because of market volatility.

Pension woes. Decreasing proceeds on annuities are forcing people to think about alternatives to standard pensions despite the tax incentives offered.

Escalating job mobility, increasing number of single households. Increasing property prices have caused a significant growth in the need for rented accommodation.

Ongoing house price inflation. Property prices have increased dramatically in recent times.

Rising number of wealthy people in the UK. The increasing affluence means that there are now more people who own second homes and have more cash that can be used for investments.

Investing in property can take many forms, for example:

Flipping a property to make a profit on the sale

Purchasing development land

Investing in income-earning property in the buy to let and commercial property markets

Investing in property development companies to sell to end users

The primary reason for investing in property is that investors can borrow up to 85% of the property’s value and get tenants who cover the mortgage payments. This is called leveraging or gearing. Leveraging simply means using other people’s cash (typically that of banks or other lending organizations) to allow an investor to make a purchase using less of his or her own money.

For investors who have owned a property for a considerable period time, it’s often possible for them to refinance the property and take out the initial funds invested while at the same time having the advantage of the property and its continuing increases in value. Considered as one of the major advantages of investing in property, this allows investors to take out a bigger mortgage after the property’s value has gone up. The increased rents to be had a number of years after the initial purchase will continue to cover the increased mortgage.

When a slump in values occur, it presents a "knock on" effect on rents as they then go up, and rental yields increase even more to reflect property values that have gone lower. The idea behind smart property investment is to wisely take advantage of other people’s money – as mentioned above – to fund a property investment. While not all people are happy with taking on debt in order to fund property purchases, it is however seen as beneficial to take on debt in order to acquire assets that will appreciate in value and could make substantial profits over time.