Buying for Investment

Making money on your property purchase

Property has been an excellent investment in recent years, particularly in London and the south-east of the country, where many buyers buy new homes off plan without even seeing them (particularly overseas buyers).

In fact many people buy off plan (early buyers typically get a 5 to 10 per cent discount) and sell before completion, termed back-to-back sales, whereby you can make a profit in a fast-rising market without actually ever paying for a property up front. In the last few years property has far out-performed the stock market and all forms of savings, and provides both capital growth and income (if you let a property). As a rough rule of thumb, house values in the UK double every seven years, although in recent years properties in many areas have doubled in as little as three or four years, even without the owners making any improvements.

Prices in many areas have been fuelled by investors – some two-thirds of all new homes in London have been purchased purely for investment in recent years! In autumn 2004, the property market was flat or falling in many areas and many small buy-to-let investors were trying to sell, although some large investors were still buying property. Most market analysts (including the International Monetary Fund) have warned that UK price growth will slow dramatically or even fall in the next five years. Your Mortgage magazine provides a handy five-year price history (past five years) and prediction (next five years) service on their website (www.propertyprices.co.uk ).

Investment decisions

A property investment should usually be considered over the medium to long term, say a minimum of five and preferably 10 to 25 years. Bear in mind that property isn’t always ‘as safe as houses’ and property investments can be risky over the short to medium term – unless you get an absolute bargain or add value. When buying a new property you need to get a good discount which allows you to recoup your investment should you need to sell quickly. You also need to take into account income tax if a property is let and capital gains tax when you sell a second home or an investment property.

There are various kinds of property investment. Your permanent family home is an investment (and should be regarded as a business investment as well as a place to live) in that it provides you with rent-free accommodation and hopefully will make a profit when you sell. In the last 10 to 20 years climbing the property ladder has made tens of thousands of people property millionaires, simply by trading up every few years.

Tip: For those who plan to live in a property for a long time it’s best to buy a home, not simply a good investment! Nevertheless, it pays to have one eye on the investment potential of a home, as you never know when you may need to sell.

Think about how easy it will be to sell when buying – if it will be easy to sell it will also be a good investment. Bear in mind that although you may make a hefty profit on your home, it may be difficult to realise unless you trade down or move to another area (or country) where property is less expensive.

Of course, if you buy property other than for your own regular use (i.e. a property that isn’t your principal home), you will be in a position to benefit from a more tangible return on your investment.

New property investors may wish to attend the Property Investor Show (www.propertyinvestor.co.uk ), held in September at the ExCel Centre, Royal Victoria Dock, London E16 1XL (www.excel-london.co.uk ).

This article is an extract from Buying, selling & letting property (UK). Click here to get a copy now.


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