Is Property Really A Good Investment?
At the risk of spoiling the ending (and the middle) of this blog, the correct answer is maybe. Whilst I could just end it there, I suspect that might be a little bit unsatisfactory as blog articles go.
Before we get to specifics, from a high-level point of view investing in property is often a tempting proposition to many people. It is too easy to see other people achieving historic levels of income and capital growth and assume that it is easy to replicate. There is also a flawed assumption that property investment is a passive activity – that you buy, simply wait and then count the money!
Of course in reality there is much more to it than that and the actions you take along the way can define whether your property investment will turn out to be a good investment decision. So what are the main factors to consider:
What and where?
There are many different types of property investment – all have very different return profiles and require different levels of active management. The most common is “simple” buy-to-let residential investment but finding value for money in that sector is often tricky. Commercial property investment is significantly more complex, potentially riskier and the return profile is very different. Mixed residential and commercial, development sites, apartment buildings, freeholds the list of possibilities is endless.
Of course, location is also important – returns and prices vary dramatically across even relatively small geographic areas.
Tax
Well, I would say that, wouldn’t I? I have written countless blogs in recent years about the many and varied ways in which the failure to take proper advice and navigate the constantly changing property tax landscape can have a significant, often huge impact on the overall net return achieved on property. You can not even think about stepping on the property ladder without considering stamp duty land tax (SDLT), income taxes, capital gains, and perhaps even inheritance tax. That’s even before you consider the potential complexities of corporation tax, the annual tax on enveloped dwellings (ATED), and many more.
The capacity to get it wrong and undermine what could otherwise be a successful investment is huge.
Management and skills
The amount of time you have to commit and the availability of specialist expertise is another major factor in the outcome. Property development for instance is highly complex, highly technical, and pretty much a full-time undertaking. Buy to let investment on the other hand, whilst still requiring some time commitment, can broadly be managed by outsourcing it to agents – albeit that obviously impacts the potential returns.
Portfolio management
As any decent investment adviser will tell you, there are some investment management golden rules. Ensuring you have a balanced portfolio – both in terms of the properties you invest in and ensuring your capital is spread across a range of other sectors. Managing and understanding the risks including property market risk, interest rate movement, availability of finance, and the potential need to refinance at a specific point in time. The more attention to detail the better the chances of a good outcome.
As usual, there is so much to consider and no room to do anything close to justice in a short blog. It is therefore always important to ensure you get good advice in all the areas outlined above. Please feel free to contact me at barry.soraff@raffingers.co.uk or click here to get in touch