For anyone serious about building their wealth and securing their financial future, investingin the UK property market is a smart choice. Here are several reasons why investing in UK properties is a superior option compared to holding your money in a bank account.
Higher Return on Investment
Over the last two decades, UK property prices have grown an average of approximately 8% per annum in value, this is significantly higher than the paltry 1.5% average rate offeredby savings accounts over the same period (source: www.bsa.org.uk).
Note that the 8% average growth is on the value of the property, not the amount invested.Smart investors that utilise leverage (a mortgage) in building their portfolios and multiplying their profits.
Typically an investor would be required to put in a deposit (down payment) of 25% of thepurchase price for a property. The remaining 75% needed to complete the purchase isthrough a mortgage. Thus, you acquire an asset that appreciates by 8% for a fraction of itsvalue.
This means where the deposit to purchase an investment property was 25% of the purchase price, the 8% growth in value of the property actually gives a whopping Return on Investment (ROI) of about 32% per annum.
To illustrate here is an example:
So the investor has made a gain of £24,000 which is 32% of the actual money invested (£75,000). Note that subsequent years the gain in terms of percentage will be higher as the 8% growth is now on the increased value.
These figures do not include rental income that might have been earned. On averagesavvy investors look to get a gross return of at least 5% on the value of the property from rental income. Thus, including the income from rents, a property investor would have realised overall gains of over 33% or more per annum.
Hedge Against Inflation
Historically, UK properties have proven to be an effective hedge against inflation, with property values tending to rise in response to inflationary pressures. Investing in properties with a high potential for long-term appreciation can help protect your wealth against inflation and promote financial stability.
The average annual rate of inflation over the last 20 years has been about 2.5%. In other words, money kept in savings accounts over a period of 20 years would have lost about20% (after accounting for interest that would have been earned) value, while funds invested in a UK property over the same period would have grown by about 640% over the last 20 years (32% per year over 20 years). This does not factor in the rental income that might have been earned. If rental income were to be included, the overall gains would be about 740%.
Thus, every £10,000.00 invested in property 20 years ago would have given an investor £70,000.40 back today. Whereas £10,000 left in a savings account would lose 20% of its value due to inflation.
Tax Advantages
Investing in UK properties can offer numerous tax benefits, especially for high-net-worth individuals. You can claim tax deductions on mortgage interest payments, property maintenance, and repair expenses and offset rental income against any losses incurred, thereby lowering your overall tax liability and boosting your ROI.
Moreover, investors can offset any losses incurred from the rental income against other income, which can lead to a lower overall tax liability. This can be especially advantageous for high-net-worth individuals who may have other forms of income, such as investments or businesses.
The way one structures their property portfolio investments is key to maximising tax advantages. Depending on your circumstance it may be more advantageous to acquire properties under a Limited Company or Partnership. As such an investor must be sure to consult with a qualified Tax Advisor / Accountant before making any investments to ensure they have the best structure set up.
Diversification
Diversification is key to mitigating investment risks, and UK property investments provide an excellent opportunity to diversify your investment portfolio. By creating a diverse property portfolio with a balanced risk-return profile, you can manage your investment risk and generate stable income and growth over the long term.
Diversification through UK property investment can help to stabilize a portfolio during economic downturns. Additionally, property investments can provide a steady stream of rental income, which can serve as a reliable source of cash flow during market downturns.
The graph above shows how buy-to-let investment properties rented have performed compared to the FTSE 100. The graph illustrates the stable growth of investment properties. Keep in mind the above graph is based on rental income and growth in price, it does not take into account leverage. Leverage, as demonstrated in a previous section greatly increases the rate of return.
Overall, diversifying your investment portfolio with UK property investments can help to reduce overall risk and provide a more stable financial future.
Personal Fulfilment
Investing in UK properties can provide immense personal satisfaction and reward. Owning your propertiesallows you to take an active role in shaping your investment strategy, and witnessing the value of your properties appreciate over time is incredibly gratifying. It is a fulfilling and rewarding experience on both a personal and financial level.
Conclusion
Property investment in the UK is a more viable option than keeping money in a bank account. It provides a reliable and stable source of passive income. The potential for higher returns, the ability to hedge against inflation, the tax benefits, and the opportunity to diversify your portfolio all make it a more viable investment option.
Additionally, owning or managing properties can provide a sense of personal fulfilment and satisfaction. Ultimately, investing in UK properties can help investors achieve their financial goals and secure their financial future and legacy.
However, the key to success in property is knowing the right areas to invest in, the right type of property, and the right strategy. With sufficient research and engaging with various estate agents one could determine these factors.
Alternatively, you could utilise the services of a property sourcer like us at Legacy Development Properties Ltd. With our experience and network, we will help you build a property portfolio that will preserve and grow your hard-earned wealth.
