Property Investment versus Traditional Investment: Who Wins?
Published on June 19, 2017 by Sarah Mac
With the population of the UK having increased by 4 million to more than 63 million according to the most recent census, and predictions revealing that the next two decades will see the number of households in the UK increase by around 250,000 PER YEAR, it is no wonder the housing market in this country is witnessing such significant demand.
According to the Office for National Statistics, there will be a shortfall of housing to the tune of 100,000 properties per year, which means that by 2025, we could be seeing a 1 million shortfall.
The population density of the UK is currently higher than any other major EU country. Recent Government statistics suggest that more than 230,000 new homes need to be constructed in England EVERY YEAR to keep up with demand. However, the volume of new builds being constructed is at its lowest level since the 1920s.
Rental properties are in high demand, but account for only a small percentage of the UK’s housing stock. This is good news for investors looking to enter the buy to let market: with such high demand come attractive rental returns and very short, if any, vacant periods.
All of this must sound appealing to the investor, but why property as an investment as opposed to other types of financial venture such as bonds and stocks? Here we look at a few of the most common reasons investors turn to property.
Reason 1: Better Control
If you are the sort of investor who likes to maintain control, then you are not going to get on with stocks and shares which basically means putting your money in someone else’s hands. With property investment however, you get to control the financial aspects yourself: set your rental rate (obviously within market parameters), take care of your bottom line and choose who you want to help you manage your investment, i.e. managing agents, contractors, etc.
Reason 2: Less Volatility
Stock markets have become highly volatile in recent times and the news last year that certain government bonds were yielding -0.1 per cent surely has to start the warning bells ringing on that investment option.
On the other hand, since 1988, property prices have risen by a breathtaking 333 per cent – an average of 12.3 per cent per year. There is no reason to think that this trend will stall, mainly because of the demand we spoke about earlier.
Plus with immigration increasing, first time buyers being thwarted in their efforts to step on the property ladder due to rising house prices and more people opting to live alone, landlords are enjoying exceptional demand, making buy to let investing a seriously stable option, particularly at present with interest rates having remained so low.
Reason 3: It’s Tax Deductible
Whilst mortgage interest tax relief has started to be eroded as of April 2017, and the wear and tear allowance system was replaced in April 2016 amidst much furore, there are still plenty of costs that the landlord is able to use to reduce his or her tax bill on the investment. Insurance, utility bills, council tax bills, maintenance and repairs, property management, accountancy fees: all of these are tax deductible costs that will help to support your investment providing you claim them all in the right way.
Reason 4: It’s a tangible Asset
When you purchase a property, you get a tangible asset. If you decide to move on from your landlord day job, you have something physical to sell on, or even a new place to call home. It could also be considered a legacy to pass down to a budding understudy. Whatever you decide to do, bricks and mortar is a quantifiable resource that you can use to your advantage.
If you are considering property investment, there will of course be risks involved, as with any type of investment. Also bear in mind that buy to let and becoming a landlord certainly isn’t for everyone. You’ll need independent, unbiased advice from financial and industry experts before you go into it. Here’s a good place to start your reading: The Money Advice Service – Buy to Let Property Investments.
If you do decide to become a landlord, take this shrewd piece of advice with you: always use a professional independent inventory company to help you protect your investment!