Every year there is always this discussion that whether property is a viable investment compared to other investable assets. The main stream media and the naysayers will always continue to warn you off the idea of investing in property. Amongst the negativity of the main stream media there are still a couple of compelling reasons why property investment remains in the long term a safe and secure asset class to invest your money.
Firstly rents are linked to wages the amount a person earns will determine what they will pay in rent. Wages generally tend to rise with inflation although not so much recently but in the long term we envisage wages to rise. Consequently if wages rise then people’s standard of living will increase which will consequently allow investors to increase rents in-line with the increase in wages. Although this may not be happening at the present time; property particularly standard BTLs or HMOs are generally seen as a long term investment. Therefore you are looking at correlations in 10 year periods. It is safe to suggest that in that 10 year window wages would increase in line with inflation. If you are making £500 in rental income now in 10-20 years time you will be making an inflation adjusted income equivalent to £500. In other words your spending power remains exactly the same and there are not many other investments that will do that.
Secondly leverage is another major factor for intriguing investors to continue investing in property. In property this performs well in an inflationary economy. For instance you borrow £75,000 for a property that is at a purchase price of £100,000. For the 25 year mortgage term inflation runs at 2% and the house grows in line with inflation and in 25 years it is worth a £164,000. Meanwhile your debt stays at £75,000 if properly leveraged. Therefore property performs well and so do other asset classes such as gold and silver however the other asset classes do not provide an income. Banks are currently willing to lend money and with all this in mind it is a great time to leverage provided you do so sensibly. On the other hand, it is clear that with wages staying stagnant there is little room for rents to rise and the government is being very stringent with investors and property prices are at a peak with nowhere to go although these are not permanent positions and they will change so long as we are in an inflationary market the benefits will remain even if we have a period of deflation. Such a period will be a temporary downwards spike and then it will bounce back and increase thereafter.
Although a lot of people have opinions of property and it being seen as negative keeping a long term view on things is good. If you allow doom and gloom merchants to hold you back you will miss out the unique opportunities that property investing can provide.
Conclusively there are of course disadvantages and despite the government’s heavy hand with investors and landlords it should still be considered as a good long term investment strategy that provides value to an investor in different forms whether that is through regular income or capital growth the benefits are apparent.