Property investment is one of the most common types of investment, and as house prices have generally increased in value over the last 25 years, can be an appealing and tangible option for potential investors.

This blog gives an overview of the pros and cons of investing in property, and what to consider before deciding on your overall investment strategy.

Advantages of Property Investment

  • Rental Income and/or Capital Appreciation – You may make a return through rental income from tenants, and/or capital appreciation from buying a property then selling it at a higher price.

  • Rental Demand – Property prices and demand for rentals might increase over time. The UK population is growing, and the average number of people per household is decreasing, meaning there are not enough homes available for the increasing population.

  • Tempting Lenders – Lenders are tempting Buy-To-Let investors with a greater range of mortgage options, such as attractive fixed rates, flexible affordability criteria, fee-free deals and cashback incentives.

  • Tax Offsets – You can offset certain property costs against tax, such as fees paid to letting agents, advertising costs, repairs, and renovations.

  • Income Alternative – Investing in buy to let can be a good alternative to an annuity for generating income, and income from a buy to let property should be relatively reliable.

Residential property has suffered its ups and downs in recent years, and no doubt price fluctuations will continue in the short term.

However, if you carefully consider the pros and cons, research locations and mortgages, ensure you have access to emergency cash, and are prepared to wait out any adverse market conditions, property is still a relatively safe and profitable long-term investment.

Property Prices

You can also get potential property benefits indirectly by choosing a fund investing directly or indirectly in property, without buying property yourself. Examples include property unit trusts, property

Investing in buy to let can be a good alternative to an annuity for generating income, and income from a buy to let property should be relatively reliable.

Disadvantages of Property Investment

  • Cashflow – If most of your money is tied up in properties, you might experience cashflow difficulties if the housing market slows. Unlike shares or bonds, it takes a long time to sell property.

  • Time To Sell Properties – You could struggle to sell properties, suffer losses/negative equity and/or rental voids if buyers or tenants are hard to find. To avoid this, diversify your portfolio to hold different kinds of investments.

  • Buying And Selling Costs – There are estate agent, surveyor and conveyancing fees to cover, etc.

  • Finding Tenants – You need to advertise, check references, hold deposits legally, issue a tenancy agreement, and manage the relationship, or pay an agency to do this.

  • Property Maintenance, Insurance and Management – You will need to invest time and money in the upkeep of the property, or again pay an agency to do this.

  • Unexpected Costs – You may have to pay for replacements, such as white goods, a new boiler or soft furnishings.

  • Mortgage Costs – The cost of the mortgage might rise due to increasing mortgage rates, or the eligibility criteria might change – you usually need to prove rent covers at least 140% of the mortgage payments.

  • Tax Changes – Tax Amendments are reducing property profits – mortgage interest tax relief is being replaced by a flat 20% credit. Stamp Duty Tax is being increased by 3% on Buy To Let purchases. Capital Gains Tax could be further increased on Buy To Let sales.

  • Rule Changes – Additional rules increase costs and difficulties in letting property. For example, the letting fees ban, capped tenant deposits, HMO licensing extensions, local licensing schemes such as minimum space requirements, and minimum energy efficiency standards.

  • Political Climate – The uncertainty created by political events such as Brexit and General elections may have a negative impact on the housing market in the short to medium term.

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Considerations

Residential property has suffered its ups and downs in recent years, and no doubt price fluctuations will continue in the short term.

However, if you carefully consider the pros and cons, research locations and mortgages, ensure you have access to emergency cash, and are prepared to wait out any adverse market conditions, property is still a relatively safe and profitable long-term investment.

Property Costs

You can invest in alternative property strategies such as Home’s of Multiple Occupancy (HMO’s), Student Lets, Lease Options, Holiday Lets, Commercial Property and many others.

You can also get potential property benefits indirectly by choosing a fund investing directly or indirectly in property, without buying property yourself. Examples include property unit trusts, property investment trusts, offshore property companies, Real Estate Investment Trusts (REITs), and insurance company property funds.

Take advice from a qualified financial adviser who will match your risk appetite, timescales, income versus growth needs, tax position and other goals to recommend the most suitable investments for you.

If you are looking to buy commercial property, then it could be worth considering using your accumulated pension pots to but property via a Self Invested Personal Pension (SIPP) or a Small Self Administered Scheme (SSAS), but will require specialist advice on this strategy as pensions are regulated investments.

To speak to an experienced Cardiff-based Wealth Management Adviser contact Tony Thomas on 07585 592494 or tony@wealthmasters.co.uk

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