Whenever there is a buy-to-let property boom it seems that everyone jumps on board the property investment train.
Property has long been cited as being a strong investment vehicle but why is that? Well, there are certain factors in property which mean it can give solid returns and real financial value in the long term. Let's look at these now.
This is perhaps the most beneficial thing about investing in property and enables you to get an excellent return on your investment by leveraging the banker's money.
Looking at an example, let's say we have $25,000 to invest. If we put this into stocks and shares and their value increased by 10% over the year we would make $2,500. This is fine but let's consider what could have happened if we had used that initial $25,000 as a downpayment on a mortgage for an investment property worth $100,000. If the market rose by 10% we would make $10,000 - so four times as much as with the stocks and shares example.
The good thing about leveraging the banks money is that when the property goes up in value it is you who would gain from this increase, not the bank. Of course, property values will not always go up so it is important to buy an investment property which has a positive cashflow.
Wouldn't it be great to have some extra money in your pocket each month? Well, if you buy your investment property correctly and have performed your due diligence you can put yourself in the position where your investment earns you a profit each month.
You need to consider all of the costs that managing and maintaining a property would incur. For example, you will need to be able to cover the mortgage payment, letting and management costs, insurance and set money aside by way of a maintenance allowance in case of any fixes and replacements that are required to be paid.
Do you have a pension plan? Do you any kind of financial plan for the future? If not, when will you realistically be able to retire? These are questions which we will all face as we grow older and start thinking about how we will get by in the future.
In the long term - say 20 to 30 years - property tends to increase in value. This means that the return on investment on your initial investment will be multiplied over time. This would give you the option to sell your property and pocket this financial gain or simply to refinance, take some money out and continue to rent out the property.
In summary, as with any investment there are inherent risks associated and the performing of due diligence is essential prior to making any purchase. However, if you can get it right then the answer to the question, "is property a good investment?", can often be a resounding "yes!".