Property is often seen as a good investment.
Yet the property market is also known to be volatile.
This leaves many people feeling uncertain.
So, is property a good investment?
Let’s find out.
What does ‘investing in property’ mean?
When you invest in property, it usually means that you save up money to inject into a house. This allows you to build up equity.
On a fundamental level, most homeowners are technically investing in property.
After all, if their property rises in value between buying and selling it, they get a ‘return on investment’ (ROI).
However, there are several ways to invest in property more intentionally.
Different ways to invest in property
1. Alteration, renovation, and decoration
Many properties may increase in value over time despite nothing changing about them.
By making regular mortgage payments, homeowners steadily increase their home equity.
However, homeowners can invest in changing the property. The degree to which they do this depends on:
- The property’s condition and potential
- How much time and money the homeowner chooses to invest.
Large, medium and small changes
At the higher end of investment, structural changes can add value value. For example, adding:
- A granny annexe
- An extension
- A loft conversion
- Converting a house into flats.
An intermediary level is renovating the property. This can involve:
- Adding new kitchens and/or bathrooms
- New flooring (including carpets)
- New windows and doors.
Finally, a smaller investment can involve:
- Decluttering (including tidying the garden)
- Replacing fittings (furniture, curtains, and other easily removable features)
- Repainting (the interior and/or outside).
Remember, investment size does not necessarily correlate with its effectiveness.
In other words, sometimes a smaller investment will give a better ROI than a larger one.
2. Let out a property
You don’t have to live in a house that you buy. You can also rent it out, meaning that someone else lives there.
This can be done using a residential mortgage, or a buy-to-let mortgage.
There are other challenges involved, though, like collecting rent and disputes. These can be outsourced to letting agents.
3. House flipping
Some people will buy a run-down house with the intention of flipping it.
This means spending money on improving its condition, so that someone will buy it for a higher price.
House flipping often involves investing in plumbing and electricity. You may also get new wall paint.
And you’ll look after the building’s structure.
Whatever the problem with your house is, it’ll be fixed and sold for a profit. It can be an intense process, but it can create lots of money.
4. Shared ownership
Even when you invest money in a house, that doesn’t mean you own the whole thing.
The ‘shared ownership’ initiative in the UK is a perfect example. People buy a percentage of the house and pay rent on the remaining share.
You can then ‘staircase’ to slowly build your equity over time.
5. Buying advantageous documents
Even while you own a house, you can find other ways to continue investing in it.
Buying a ‘share of freehold’ may increase its value. This also applies to extending a lease or getting planning permission.
Buyers will view your property favourably and you can sell it for more.
How many people invest in property?
According to the Office for National Statistics, roughly 62% of households in the UK have bought their property.
Although, some experts have disputed the accuracy of this.
Meanwhile, 16% of adults surveyed by specialist lender Market Financial Solutions invest in property other than their own house.
This typically means they invest in buy-to-let property, holiday rentals and commercial units.
Is the UK housing market rising in value?
Zoopla expects UK house prices to rise by 2.5% over the next year.
Meanwhile, in the past 12 months, property prices have increased by 4.6% according to Nationwide.
Don’t forget that these figures can vary for each town.
So, speak to property experts in your local area to see how the nearby prices are moving.
Advantages of investing in property
Strong track record of value increases
The UK housing market has an excellent track record of increasing in value.
This means that in most cases, you’ll get your money back (and then some) when the time arrives to sell.
It can create a regular income (rental)
A house doesn’t need to sit idle when you buy it. You can rent it out and create monthly income from it.
This makes it a far more lucrative investment in the short term. Especially if you manage your costs well.
Diversify your portfolio
It’s useful to not put ‘all your eggs in one basket’.
Many people are prone to keeping all their money in savings accounts or investing in the stock market.
However, property represents another excellent way to diversify your portfolio.
Disadvantages of investing in property
Your money isn’t accessible
When you invest a lump sum of cash into your house, you can’t access it.
You can borrow against it or take out equity release (if you meet the criteria), but otherwise, it’s stuck in the house until you sell.
It thus offers no short-term spending power.
Tenants can give you headaches
When you rent out your house, you dream of a scenario where it gives you a ‘passive’ income.
But this is far from reality! Tenants can often give you stress.
Even if they’re well-behaved, appliances will break, and contracts must be renewed. There’s plenty of work involved.
You aren’t guaranteed a profit
Even if your house value doesn’t decline, the costs involved with buying (and then selling) a house can create a loss.
And local markets will sometimes go through downturns.
So, if you’re forced to sell in a particular timeframe, it can make the finances shaky.
Is property a good investment?
In most cases, property is a safe investment.
The UK housing market has an excellent track record of improving year-on-year. And lots of experts encourage people to take this approach.
You should just be mindful of your personal and financial circumstances. Timing is as important as anything.
And you shouldn’t overextend yourself by putting in more money than you can afford.
Likewise, if you plan to rent out your house, prepare for the time and effort involved.
It’s not as easy as some people say! Get independent advice before making any decisions.
Alternatives to investing in property
Stocks and shares
You can invest your money in stocks and shares. This is known to offer decent returns.
Assets that tend to grow in value
There are plenty of assets that people invest money in besides property. Wine, art and land are common examples.
Business
Investing in a business can take many different forms.
You may plan to start your own. Or maybe you want shares in another business, so you benefit from the profits it makes.
