Many dream to own their own home!

Property has been a popular route to wealth for many. Buying their own home is often the first investment many people make; purchasing another property may well be the second even before shares and other assets.

But why choose to invest in property rather than the other growth asset like stock? While the Stock Market offers high returns, many investors have found it to be a volatile and dangerous place. This is especially true for the non-professional investor as there are many hidden external factors that can effect a financial investment. Some of the reasons in property investment are:

  • capital growth
  • rental income
  • hedge against inflation
  • greater degree of control

Sensible investments in property have many attractions. Property can be less volatile than shares though not always and it tends to be regarded as a safe haven when other assets are declining in value.

Property investment has the potential to generate capital growth (an increase in the value of your asset) as well as rental income. Putting our money in the bank or investing in fixed interest does not give us any capital growth. Even though properties increase in value over time, however, it is important to ensure that we buy property in the right location to maximize the capital growth. In the early stages, rental incomes often do not exceed outgoings on a property – particularly the costs of servicing the loan. But as the property increases in value, rents tend to rise faster than costs and the property generates net income.

Inflation is common everywhere. The rate of inflation varies according to the strength of the economy. One of the benefits of holding property is that property values increase at a greater rate than inflation.

Start early. Buying a small apartment to rent out can be a good way to build a big enough nest egg so we can eventually buy our own place, in an area where we want to live.

Still others are diversifying into non-residential property via property trusts like REIT.

However, as with any investment, there are no guarantees. Property prices go down, as well as up, and sometimes tenants are hard to find especially good ones who pay on time and take care of your investment.

Investors need to have a keen awareness of the interest rate environment how higher rates might affect their expected net return and the market for their property should they wish to sell. They also need to make sure the return or yield from their property stands up against the return they might have achieved had they invested in shares, for example.

To invest in property, we can invest in managed funds with a property focus, listed property trusts. This will provide exposure to a broader range of property including commercial, industrial and retail as well as residential often with a smaller investment required.

No investment is risk free. Many people have become wealthy through property investment, but it is also possible to lose money. Buying the right type of property in the right location will help us to achieve our goal.