Why put your money in property?

Three reasons to trust property as an investment

For many, the last few years have been hard. With the economy struggling, job security low and unemployment high, the last thing on would-be investors’ minds has been putting their funds anywhere more risky than a bank account which gives them a nominal (at best) return.

The economy grinds on though, and we find ourselves in a new cycle. So where should you put your hard earned funds now? Should you wait for interest rates to pick up and leave them in the bank, or should you consider another asset form with more attractive returns?

For fifty years or so, many advisors would have strongly advocated shares as the primary destination for your rainy-day fund.

According to >lovemoney.com, returns on shares over the 50 years preceding 2009 would have netted you a 5.2% return every year – turning an original £1,000 investment back in 1959 into £12,612 in 2009. That’s just using a tracker fund, which is akin to putting a fraction of your investment in every share available so that the total rises and falls with the whole stock exchange. A savvy investor with time and inclination could have secured more, and undoubtedly some did.

Stocks are synonymous with risk, however, and it is a common adage in the broking world that historic data is a poor indicator of future performance. The market is unpredictable and property can offer something different to investors:

1. 1.       The stock market is, in many ways, close to a perfect market. All investors can see in real time what price each share is worth, which means that there is no negotiating and a given investor cannot buy an asset at a lower price than any other investor.

Property, contrastingly, is anything but perfect. Investors can buy a property at a substantial discount because often the vendor doesn’t know what it’s worth, particularly if they haven’t instructed a >professional valuer to advise them. A well advised investor is therefore at a significant advantage.

1. 2.       Property offers the advantage of control. A share is bought and floats on the market, at the mercy of market forces. Whilst a property is also subject to the success of the local and regional market, it is a tangible asset and can therefore be changed and improved. Extending the property, adding a conservatory, converting the loft space or installing energy efficiency measures can all increase the value of the asset.

1. 3.       Most important of all? Shares are volatile, property is (typically) not.

Referring back to our example earlier, two decades of those fifty years - 1999-2009 and 1969-79 - would have recorded average year-on-year losses of 2.3% and 1.2% respectively if that £1,000 had been invested in shares.

Property, if left completely alone, un-renovated and not including rental income, would only have decreased during the period 1989-99 and then only by -2.4% on average year-on-year. Consider the rental income which would have been accrued over that time and even that period would have been comfortably positive.

In recent decades, the value of a well-located property has been shown to double every 8 to 10 years on average (smartcompany), which aptly shows the potential for a sensibly made investment to accrue attractive levels of income. But you needn’t consider property only from a buy-to-sell perspective, many invest to benefit from a reliable rental income stream; a useful dependable income in uncertain times.

About the author:

The Right Surveyors are specialists in valuing property and understanding what makes a strong investment. If you’re considering a property as a new asset, don’t hesitate to drop us an email, give us a call or use the chat system on >www.rightsurveyors.co.uk