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Why is property investment better at generating wealth for those who have the vision and the drive to make a career in bricks and mortar - surely one of the fastest growing, and increasingly competitive, markets in the UK. The main reason that property investment gives a higher return than other investments and is better at generating wealth is that in most cases whilst the capital to buy the property can be borrowed from banks, you'll get to keep all the capital growth as your profit.
For example - say you find a property in the UK for £200,000 and are able to arrange a mortgage for 85% of the value. You go ahead and purchase the property with a £30,000 deposit of your own funds. In 8.2 years the property has doubled in value and assuming that the rental income has covered major running costs, including mortgage payments, the same property is now worth £400,000. You sell the investment property and pay back the £170,000 mortgage (as you'll have had it on a interest only basis to keep running costs low) and retain the £230,000 balance, £200,000 of which is capital growth profit. Even taking out legal fees and taxes payable it's still a much better return than most other investment vehicles. The cost to you is that you've had £30,000 tied up in the property.
This example shows why, on a risk vs. reward basis, property investment remains one of the best investment propositions available to you. It's worth pointing out that UK property has doubled in value every 8.2 years since 1946.
As with all investments, you need to keep in mind that with property there are 3 stages - the entry, the management & the exit. The Entry - this is where you need to consider what's the price, is it below market value, what's the historic and predicted Capital Growth, can I get finance/mortgage? The management - this is where you need to ask yourself how and who do I rent to, do I employ a letting agent, how do I furnish the property, what about repairs, maintenance and tenant letting? The exit - an important stage that many investors, particularly new investors, overlook - how are you meant to liquidate your assets if you can't sell? You need to ask yourself, how sellable is the property, will it sell to a owner occupier or another investor, is there a lot of other similar property up for sale in the area and what are the costs of selling?
Before you undertake any investment, particularly a property investment, it's important that you fully understand all these aspects and all of your property investment options. Then, and only then, will you be in a position to make an informed choice as to which Investment Property Strategy is most likely to achieve your financial goals.
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