3 pieces of crucial property investment financial advice you need to know
If you’ve decided to invest in property, it’s important to understand the current landscape and where the market is predicted to head in the future.
It’ll simply have relatively low-interest rates and high inflation rates. That’s right — inflation is forecast to be higher than interest rates. In the meantime, we thought it would be worth highlighting three crucial pieces of property investment advice we think you need to know. These are:
- Forget about growing your wealth with savings
- Take on debt responsibly
- Invest in real assets
1. Forget about growing your wealth with savings
The kind of conditions we’re living in now and will continue to be in the future is often referred to as ‘stealing from savers’. This is because you might start the year with say £100 and — thanks to interest — end the year with £102. However, as inflation is higher than that, the amount you can buy with £102 is less than what you could have bought a year ago with £100.
“Saving money in a bank account means losing out even if it looks like you’re winning. Inflation is eroding the buying power of your hard-earned cash.” — Craig Peterson, Strategic Advisor Finance Nation
2. Take on debt responsibly
If the rate of inflation is higher than the rate of interest you’re paying on your debt, then all you need to do is invest in something that keeps up with inflation and you’ll come out ahead.
You don’t need to make any kind of genius investment; you’ll win purely from the fact that you’ve taken on this debt at such cheap rates. And by taking on this debt, you’re in the exact same position as the government, which owes a huge amount of money — they want to benefit from these conditions and you can as well.
The key word here is ‘responsibly’. If you borrow money and invest it in something that goes to zero, then it’s still a disaster, regardless of how cheaply you borrowed the money. What can help you here is inflation. By investing in something that goes up in line with inflation, the asset will hold its value.
Over the course of a year, that doesn’t feel dramatic. But over a few years, it can become significant. If inflation runs at 4% per year — which is above target but significantly lower than it is today, and it does that for 10 years — a third of the value of your debt will have evaporated even if you never pay off a penny of it.
This is the effect of inflation eroding the value of your debts.
"If you invest in property that does better than inflation, and pays you an income too, you’re winning twice over.” — Judith Lancaster, Appointed Representative, Finance Nation
3. Invest in real assets
Real assets are anything you can physically touch and property is obviously one of these, along with things like infrastructure and commodities. Since we’re interested in property, it’s worth explaining that it’s attractive because:
- Property tends not just to keep up with inflation but also outpace it. Between 1845 and 2016, property outpaced inflation by an average of 1.1% per year.
- The income generated from property also keeps up with inflation. Unlike fixed income bonds, for example, the rent you receive from property can be increased in line with inflation. Rents also tend to rise with inflation, which means you have an income stream that ensures you don’t lose out due to inflation.
“Investing in property is a great way of taking on debt. You can get quite a large amount of debt quite cheaply by securing it against property.” — Craig Peterson, Strategic Advisor, Finance Nation
The guidance doesn't end there...
If you follow these three property investment principles, we believe you’ll be able to continue building your net worth and increase the value and quality of the properties in my portfolio.
But our guidance doesn’t end here. We’ve created a property investment portfolio playbook that takes you through available options, from loan strategies to bank applications. Get the insights below by downloading your free copy today.
