Why invest in property in the UK?
Key Reasons to Invest in Real Estate (sourced from Barclay Palmer, updated and adjusted by George Betz, May 17, 2022)
Key Takeaways
Real estate investors make money through rental income, appreciation, and profits generated by business activities that depend on the property.
The benefits of investing in real estate include passive income, stable cash flow, tax advantages, diversification, and leverage.
Cash Flow
Cash flow is the net income from a real estate investment after mortgage payments and operating expenses have been made. A key benefit of real estate investing is its ability to generate cash flow. In many cases, cash flow only strengthens over time as you pay down your mortgage—and build up your equity.
Tax Breaks and Deductions
In the UK, following very precise and specific routes, real estate investors can take advantage of numerous tax breaks and deductions that can save money at tax time. In general, you can deduct the reasonable costs of owning, operating, and managing a property. The Key is to know what you are doing.
Portfolio Diversification
Another benefit of investing in real estate is its diversification potential. Real estate has a low—and in some cases negative—correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.
Appreciation
Real Estate Investors make money through rental income, any profits generated by the property-dependent business activity, and appreciation. Real estate values tend to increase over time, and with a good investment, you can turn a profit when it's time to sell. Rents also tend to rise over time, which can lead to higher cash flow.
Median Sales Price of Houses Sold in the United Kingdom
Build Equity and Wealth
Real estate investors make money through rental income, any profits generated by property-dependent business activity, and appreciation. Real estate values tend to increase over time, and with a good investment, you can turn a profit when it's time to sell. Rents also tend to rise over time, which can lead to higher cash flow.
What Is Indirect Real Estate Investment?
If, like so many people these days, you find it increasingly difficult to get onto the property ladder Indirect Real Estate Investing may be the way forward for you. It involves no direct ownership of a property or properties. Instead, you invest in a pool along with others, whereby a management company owns and operates properties, or else owns a portfolio of mortgages. Within the Fortune Investor Club, you are a share holder of that management company, thereby creating and increasing your wealth.
Real Estate Leverage
Leverage is the use of various financial instruments or borrowed capital (e.g., debt) to increase an investment's potential return. A 20% down payment on a mortgage, for example, gets you 100% of the house you want to buy—that's leverage. Because real estate is a tangible asset and one that can serve as collateral, financing is readily available.
Inflation Hedge
The inflation hedging capability of real estate stems from the positive relationship between GDP growth and the demand for real estate. As economies expand, the demand for real estate drives rents higher. This, in turn, translates into higher capital values. Therefore, real estate tends to maintain the buying power of capital by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure in the form of capital appreciation.
How Can Real Estate Hedge Inflation?
There are several ways that owning real estate can protect against inflation. First, property values may rise higher than the rate of inflation, leading to capital gains. Second, rents on investment properties can increase to keep up with inflation. Finally, properties financed with a fixed-rate loan will see the relative amount of the monthly mortgage payments fall over time -- for instance £1,000 a month as a fixed payment will become less burdensome as inflation erodes the purchasing power of that £1,000.