Is property a good first investment?

7th July 2021

By Will Leyland

That driving economic power has been gradually shifting towards ‘generation x’ and ‘millennials’ over the past decade, and this is becoming increasingly apparent in the property and investment markets, as well as in branding and marketing.

You may have noticed that many of the biggest companies in the world have been accused, to varying extents, of being too ‘woke’ in the branding and marketing, however, this represents a good example of how these brands and companies are now much more focused on their younger customer base as they become a larger and larger part of the economy with their spending power.

In terms of investments and the future, many millennials are now cash rich, earning good money and becoming much savvier when it comes to investing, however, we still find a lot of younger investors approaching us and asking whether property represents a good first investment.

We’ve put together a short guide of the pros and cons of investing in property as a younger investor.

Secure

In terms of security, property offers one of the most secure places for you to put your money in the long-term.

Since the financial crash of 2008, house prices have only dropped, year-on-year, on two occasions. First, directly after the crash in 2008, and then secondly in 2011 when prices dropped by 1.1%.

Overall, however, since 2008 the average house price in the UK has risen from just over £180,000 in 2008 to £255,000 in 2021, representing an increase of 42%.

Income generating

Something that tends to set property aside from other assets, however, is that it also generates an income for the asset holder.

There are examples if you invest in stocks and shares where you can earn dividends, which are annual shareholder payments, which also generate income for the asset holder, but it should be said that share prices are generally more volatile than property prices.

When you invest in property as a buy-to-let, you rent out your asset to somebody else, generating rental income. You can calculate whether you’re making a good return by dividing the total rental income by the value of the property on an annual basis.

As an example, if you bought a house for £100,000 and you rented it out for £10,000 per year, that would mean your rental yields on the property would be 10% per year.

Illiquid

Depending on your circumstances, something to keep in mind when investing in property is that your money isn’t liquid and easily able to be turned back into cash.

With an ISA, for example, most cash ISA’s will allow you to withdraw your money immediately, whereas a property investment is a long-term commitment. Selling your property to generate cash or capital can be complicated and take some time to go through, so it isn’t something that’s suitable for somebody who needs access to their cash.

Risks

As with any investment, there are risks involved. For example, there may be times when your property is vacant and you don’t have a tenant paying rent to cover your mortgage, so you need to know you’d be able to cover the mortgage in the event that this happened.

Secondly, you may be unlucky and take on tenants who need to be evicted, or cause damage to your property. With that in mind, it always makes sense to use a reputable agency who can take care of this side of things for you.

Finally, whilst UK property has been a remarkably secure and profitable investment over the past 20 years, there’s never a guarantee that prices will increase forever, and there is always a risk the price may drop, or that interest rates may increase, increasing your mortgage payments.

That being said, if you compare property against alternatives such as crypto currency or stocks and shares, it offers a great profit with relatively little risk in comparison, so in answer to the question is property a good first investment? The answer would be yes, in most circumstances, but we’d advise you to talk it over with one of our advisors first to make sure it’s suitable for you.

Are you looking to make your first investment? Click here to see what we have available!

Did you find this article helpful?

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Is property a good first investment?

07 July 2021

That driving economic power has been gradually shifting towards ‘generation x’ and ‘millennials’ over the past decade, and this is becoming increasingly apparent in the property and investment markets, as well as in branding and marketing.

You may have noticed that many of the biggest companies in the world have been accused, to varying extents, of being too ‘woke’ in the branding and marketing, however, this represents a good example of how these brands and companies are now much more focused on their younger customer base as they become a larger and larger part of the economy with their spending power.

In terms of investments and the future, many millennials are now cash rich, earning good money and becoming much savvier when it comes to investing, however, we still find a lot of younger investors approaching us and asking whether property represents a good first investment.

We’ve put together a short guide of the pros and cons of investing in property as a younger investor.

Secure

In terms of security, property offers one of the most secure places for you to put your money in the long-term.

Since the financial crash of 2008, house prices have only dropped, year-on-year, on two occasions. First, directly after the crash in 2008, and then secondly in 2011 when prices dropped by 1.1%.

Overall, however, since 2008 the average house price in the UK has risen from just over £180,000 in 2008 to £255,000 in 2021, representing an increase of 42%.

Income generating

Something that tends to set property aside from other assets, however, is that it also generates an income for the asset holder.

There are examples if you invest in stocks and shares where you can earn dividends, which are annual shareholder payments, which also generate income for the asset holder, but it should be said that share prices are generally more volatile than property prices.

When you invest in property as a buy-to-let, you rent out your asset to somebody else, generating rental income. You can calculate whether you’re making a good return by dividing the total rental income by the value of the property on an annual basis.

As an example, if you bought a house for £100,000 and you rented it out for £10,000 per year, that would mean your rental yields on the property would be 10% per year.

Illiquid

Depending on your circumstances, something to keep in mind when investing in property is that your money isn’t liquid and easily able to be turned back into cash.

With an ISA, for example, most cash ISA’s will allow you to withdraw your money immediately, whereas a property investment is a long-term commitment. Selling your property to generate cash or capital can be complicated and take some time to go through, so it isn’t something that’s suitable for somebody who needs access to their cash.

Risks

As with any investment, there are risks involved. For example, there may be times when your property is vacant and you don’t have a tenant paying rent to cover your mortgage, so you need to know you’d be able to cover the mortgage in the event that this happened.

Secondly, you may be unlucky and take on tenants who need to be evicted, or cause damage to your property. With that in mind, it always makes sense to use a reputable agency who can take care of this side of things for you.

Finally, whilst UK property has been a remarkably secure and profitable investment over the past 20 years, there’s never a guarantee that prices will increase forever, and there is always a risk the price may drop, or that interest rates may increase, increasing your mortgage payments.

That being said, if you compare property against alternatives such as crypto currency or stocks and shares, it offers a great profit with relatively little risk in comparison, so in answer to the question is property a good first investment? The answer would be yes, in most circumstances, but we’d advise you to talk it over with one of our advisors first to make sure it’s suitable for you.

Are you looking to make your first investment? Click here to see what we have available!

Will Leyland

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