Why Property Can Be a Powerful Tool for Building Wealth
Over the next 12 weeks, I will be posting 12 articles that detail a framework to achieve GBP10k per month with UK property.
There is no 'magic bullet', it will take time, discipline and dedication to reach that figure. But, it is possible for all of us.... Only, if we create goals, alongside a plan. and stick to them.
This is the first article, and a snapshot as to some of the reasons we belive property is such a powerful tool for building long-term wealth. This sets the scene for the articles to follow.
Here we go;
The UK property market has captured the interest of investors for centuries, with its proven track record, tangible asset value, and potential for passive income being key. Here, we explore why property remains a preferred asset class for wealth building and how leveraging can magnify your investment returns. We will look at;
Proven Track Record of Stability and Growth
Property investments stand the test of time, boasting over 200 years of consistent growth in property values and rental income. This historical evidence offers a sense of security to investors, underlining property's potential for steady returns. Unlike more volatile markets that can fluctuate wildly, real estate offers a more measured pace of appreciation, making it an attractive option for those seeking long-term investment stability.
From January 2000 to January 2024 house prices grew 297%, from GBP75,219 to GBP299,000. After inflation, this is 226%.?
The Tangibility of Property
One of the unique advantages of property as an investment is its tangibility. Unlike stocks or bonds, which exist only in the digital world of numbers and transactions, property is a physical asset. You can see it, touch it, and directly influence its value through improvements and management. This tangibility provides not just a psychological comfort but also a level of control over the investment’s future value.
Passive Income Potential
Perhaps one of the most enticing aspects of property is the ability to generate ongoing passive income. Rental properties can offer a steady source of revenue that, over time, contributes significantly to wealth accumulation. Furthermore, as you expand your property portfolio, this earning power increases, paving the way for financial independence and a more secure future.
The Power of Leverage in Property Investment
Leverage is a powerful tool, allowing investors to control high-value assets with only a fraction of the total investment down. This use of borrowed capital can significantly amplify returns on investment, making it a compelling reason to include property in your wealth-building strategy.
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Understanding Leverage through an Example:
Keeping it simple - consider purchasing a property valued at ￡100k with a 6% annual yield. If you buy outright, you could expect a return of ￡6,000. However, by leveraging your investment with a 30% deposit, or ￡30k, you still achieve a ￡6,000 return but on a smaller initial investment.
This effectively turns into a 20% return on your invested capital.
Additionally, any increase in the property's value benefits the total value, not just the portion you've paid. A 10% increase in the property’s value translates to a ￡10k gain or a 33% return on your ￡30k investment.
In this scenario, you're leveraging the bank's money to your advantage, not just using your personal funds.
Example below showing GBP100k used to buy 3 properties with a mortgage, versus 1 for cash;
?When compared to other investment vehicles, the ability to utilize leverage with relatively low risk is a distinctive advantage of property. It’s a compelling argument for why property continues to be a favoured path for building wealth, especially among those looking to optimize their returns while controlling sizeable assets with limited initial outlay.
For aspiring investors, first time buyers, property enthusiasts, and wealth builders, understanding the dynamics of the UK property market, including the wise use of leverage, can be the key to unlocking significant financial potential. Property offers a path to wealth that combines the security of tangible assets with the growth potential of strategic investments, making it a pillar of any well-rounded investment strategy.
That is it.
Tune in next week for number 2!
Thanks
Callum
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Senior Director, Oncology Corporate Affairs at AstraZeneca
10 个月Interesting Callum. If you model it out over 25 years it gets even more interesting: Person 1: Buys 3x100k properties with 70% mortages at current 5.25% rates. This generates ~￡3k per year in income after paying the mortgages. They save that income in an index fund and get ~7% annually. Assume 5% house price annual growth. In 25 years the mortages are paid off, they have 3 properties worth in total about ￡1m, and ￡200k of savings from the income. ￡1.2m in total assets. Person 2: Buys one 100k property outright, saves ￡6k per year of income generated. After 25 years property is worth ~￡330k and they have ~￡400k in the bank. ￡730k in total assets. After 25yrs Person 1 is ~65% better off, after starting with the same capital. Obviously person 1 is much less liquid and takes more risk, and there are huge assumptions of linear growth (which are never true), 100% occupancy, no huge rise in rates etc., but an interesting exercise.
Business Development Director, Push Property, UK. Social Media Automation for Real Estate Agents.
10 个月Very informative