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Is property really a ‘guaranteed’ investment?

Posted on: by Madeleine Sunley

Isn’t it an annoying fact, that nothing in life is ever completely straightforward? There are always two sides to every coin. And it’s so important, when setting up your financial planning, that you take a good hard look at both sides of the coin, so you can make the best decisions on what’s going to work for you, and what isn’t.

Property ownership is a prime example of what I mean. Many of us have the largest part of our net worth in property – our own home. And how many of us are tempted by the idea of having an additional rental property, or have already acquired one? Certainly, many of us have grown up within a culture that has always smiled on property and ownership, how many times have we been assured of the security of bricks and mortar?

Property can be a great investment and certainly prices, in and around Ascot, have continued to steadily rise – and rise. They didn’t get knocked for too long in the credit crisis, did they? But we shouldn’t forget the pain, strain and uncertainty while that was going on, when we didn’t have a crystal ball and couldn’t be sure if things would hold or fall. We also only have to look across the Atlantic to see the mess in the US, that’s still reverberating today, caused by blissfully and blindly lending money for mortgages that didn’t have a hope of ever being paid off or even kept up.

Here are a couple of my thoughts – casting light on both sides of the coin:

WHY PROPERTY IS A BRILLIANT INVESTMENT (EXCLUDING YOUR HOME):

  • Increasing property prices: According to the Nationwide House Price Index – which has been data collecting and recording since 1952 – for the 30 years since 1985, house prices have increased on average by 6.6% per year.
  • Rental income: This could cover any mortgage you may have on your rental property, or if you don’t have a mortgage, the rental will provide an income.
  • A home for your children: You may, like me, wonder whether your children will ever be able to afford to buy a house (unless they’re prepared to completely relocate, taking them away from friends and family). If this is something you’ve mulled over, then maybe buying a rental property could be a solution. The property could be given to the children at a later date or could be sold, providing a lump sum for a deposit. This would give you the comfort of knowing, when the time is right, you’d be able to set your children on the first few steps of the property ladder. 

WHY PROPERTY SUCKS AS AN INVESTMENT

  • Dealing with tenants and or managing agents: Renting out a property, isn’t always a smooth or untroubled run.
  • Property maintenance: Keeping a property in a consistently good state of repair, can be costly.
  • When you sell: You will pay CGT (Capital Gains Tax) on any growth. For example, if you bought a property for ÂŁ200K and sold it for ÂŁ300K, you would have ÂŁ100K of growth that would be liable for CGT. Final tax liability is dependent on your status as a basic or higher rate taxpayer and on whether you bought the property as a couple what the CGT allowance at the time of selling is etc but could be somewhere from ÂŁ14,000 – ÂŁ22,000. That obviously cuts into your profit.
  • If you’d opted for other investments: You could have structured it so that potentially no CGT was payable, thus putting more money in your pocket.

So you’ll see, there’s no hard and fast rule, no absolute right or wrong, It’s all about making sure you consider all options open to you and being confident, when you make your decisions, that they are right for you and your family.