When you have a reasonable amount of money, you may start to consider whether leaving the money in the bank is really the best place for it to be. One of the other options is to invest your money in property.
• What is your financial situation now?
• What are your financial goals?
Financial situation now
It is a great idea (if not essential) to have a cash amount available to cover emergency situations. The government’s money advice service recommends savings to cover three months of essential outgoings – rent/mortgage and food.
Do you have huge debts? Then any savings are probably better spent paying these off.
• Short-term: Next five years. Save your money. Best advice is to save your money in the bank. The costs associated with purchasing property and renting will, generally, not be covered by short-term gains on the property market.
• Medium-term: next 5-10 years. Look at a combination of saving and investing. This is possibly the riskier financial goal zone. Any property investments you make here will be greatly affected by inflation and interest rates. You will need to consider how much risk you are happy to live with for your investments.
• Longer-term: 10 years plus. Invest your money. This is a great time frame to be considering property investment for your money.
Don’t necessarily be put off of property investment because you don’t have enough money personally for a deposit. There are other ways, such as pooled funds, for you to invest should you wish to.
There are two main reasons to invest in property:
• Rent. There is the potential to earn an income from renting your property out. The other use of rental income is to pay off your mortgage so that the property will eventually become mortgage free. In this situation, the rent really would be an income.
• Selling for a profit. Purchasing a property with the main aim to sell it at a later date for a higher price than you paid for it.
Risks of Property Investment
When you are considering a property investment, as shown above, you need to think of this investment as a long-term one. Property prices increase and decease, as does rental demand and therefore rental yield.
• Needing to get your money out quickly. Anyone who has been through either side of a property sale will know that this is not a quick process! Make sure you are only investing as much as you can afford to.
BANK – Depending on the type of account you save your money in, you could access your savings immediately.
• Commitment. Purchasing property isn’t a light-hearted decision; a lot of your hard-earned money will be tied up.
• Costs. This type of investment will only make money in the long-term. Short-term there are costs such as mortgage fees, stamp duty, and legal fees to consider – both in the buying and selling of property.
BANK – Generally there are no or very little fees involved in savings products.
• Time commitment. You will need to either carry out the maintenance on your property or arrange for someone to do it for you.
• Mortgage. With a buy-to-let property there is never the guarantee that you will always have a tenant and be able to cover the mortgage with the rent. Mortgage costs may rise – you could consider paying extra for a fixed rate.
BANK – Interest rates will rise and fall, but (depending on the product) you will not end up with less money than you have originally invested.
Property investments can make huge profits. They can also provide a mortgage free property on retirement, which you could live in, or sell and use the money as a pension. Always carry out as much research as you can and seek professional advice. Remember that your money is always at risk.