Discover the Advantages of
Investing in Property

What are the advantages of investing in property?

In other words why do investors prefer buying investment property as opposed to buying other types of investments?

Why don't they just put the money in the bank, or buy stocks and shares?

Surely there's more return in those investments, isn't there?

One of the advantages of investing in property is that property carries less risk than do stocks and shares. Properties will never go out of fashion. We all need houses to live in and business space to serve the needs of our customers.

But the primary reason for investing in property is that an investor can borrow up to 85% of the value of the property and get the tenant to cover the mortgage payments through rent.

This concept is called ‘gearing’ or ‘leveraging’.

In the simplest terms, ‘leveraging’ means using other people’s money (usually that of banks or other lending institutions) for your own financial gain.

Experienced investors are au fait as to the concept of leveraging, and they use it to their own advantages. This is one of the most popular ways to accumulate wealth in property investments.

How can you use leveraging to your advantage?

As a property investor, I believe that leveraging in the investment property business is an excellent way to make money. Some of the world’s wealthiest people amassed their riches by leveraging their money to buy investment property.

Let’s explore how this works in more detail.

Leveraging - How to Use Other People’s Money for Financial Gain

Let’s say that you have £30,000 that you’d like to invest, but you aren’t sure where to put it. The key question is, "Where will you get the best return for your money"?

Here are three popular investment options:

The Bank

Putting money in the bank is generally considered to be the “safest” investment you can make. You probably won’t lose your money, and you can expect to make some modest (albeit minimal) interest on your money. But as investment rule #1 tells us, low risk = low reward. If you’re lucky, you might make 5% from your hard-earned money.

The Stock Market

The stock market has been a popular choice among investors for years. Even with all the problems the market has had within the past few years, it still remains the investment of choice for many people. You may have read articles by the ‘experts,’ who say that the stock market is ever growing.

Some of the so-called experts say that the stock market may grow as much as 10% per year while the investment property market may rise by only 6%. I find this hard to believe. I favour the use of leveraging within the property investment market, which, in my opinion, will surpass the 6% prediction.

Let’s look at what the stock market has to offer investors:

Let’s assume that you can gain an average return of 10% in the stock market. This is a highly unrealistic return year after year for 10 years, but for the purpose of this illustration, we will use this assumption.

This is not a bad return by any standard. It is certainly better than putting the money safely away in the bank. However, keep in mind that the money used in this example could have been lost at any time. Playing the stock market is very risky and, because of our initial assumption, getting this return is highly unlikely. The return is quite attractive in this illustration, but there are better options – namely, investing in property.

Advantages of Investing in Property

The primary advantages of investing in property is the ease of using other people’s money through leveraging.

In this example, we’ll assume a 5% return over a 10-year time span. This is an extremely conservative figure, considering that actual returns have averaged 11% per year for the past 70 years.

In this illustration, you invest £30,000 and the bank loans you the additional £70,000 needed to buy an investment property valued at £100,000.

Let’s take a look at the anticipated returns:

Making the Right Decision About Where to Invest

The figures speak for themselves: The advantages in investing in property is clearly a highly profitable option. The risks are much lower than those in the stock market, yet the return is much higher, making this by far the best investment option for your money.

Selecting the lowest-risk option of putting your money in the bank will result in a minimal gain for your money. There is a better way to invest.

Investing in property sensibly will yield greater benefits, and the only real investment that you’re banking on is time. A pound today will be worth a lot less in '10 years' time.

Investing in the stock market is extremely risky. You could have millions today, and then one misjudgement or bad investment could leave you with nothing tomorrow. If the stock market plummets, you have nothing. In contrast, if your investment property is destroyed, you’ll be covered by an insurance policy that will help you recover your losses.

Leveraging your resources will enable you to make money, and one of the best places to do this is in the property market. You can repeat your success with one property investment to make a hundred property investments, and your assets will grow along with the property market.

Please note: For simplicity and ease of understanding, the financial illustrations in this article have omitted some expenses associated with investments. However, the benefits that you will gain from leveraging and the rental income will cover these expenses. The examples cited in this article should clearly demonstrate the financial advantages of investing in property.

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