There are various kinds of property investment. Your principal home is an investment in that it provides you with rent-free accommodation. It may also yield a return in terms of increased value (a capital gain), although that gain may be difficult to realise unless you trade down or move to another region or country where property is cheaper. Of course, if you buy property other than for your own regular use, e.g. a holiday home, you will be in a position to benefit from a more tangible return on your investment.
There are essentially four main categories of investment property:
- A holiday home, which can provide a return in many ways. It can provide your family and friends with rent-free accommodation while (hopefully) maintaining its value, and you may be able to let it to generate supplementary income. It may also produce a capital gain if property values rise faster than inflation (as in recent years).
- A home for your children or relatives, which may realise a capital gain. This could also be let when not in use to provide an income.
- A business property, which could be anything from a private home with bed and breakfast or guest accommodation, to a shop or office.
- A property purchased purely for investment, which could be a capital investment or provide a regular income, or both. Many people have invested in property to provide an income on their retirement.
A property investment should be considered over the medium to long term, say a minimum of five and preferably 10 to 15 years. Bear in mind that property isn’t always ‘as safe as houses’ and investments can be risky over the short to medium term. You also need to take into account income tax if the property is let. You also need to recoup the high purchase costs of up to 15 per cent when you sell.