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I have been an IFA for
over 20 years in Europe and Asia. I have met hundreds of clients with
different portfolio's of assets, different expectations and different
views. Throughout the 20 plus years I have experienced a number of
property crashes and booms in the UK, Europe and in Asia. It is
interesting to note that those clients with exposure to property are the
ones that in general, have seen the best overall returns over the longer
term and therefore have been in a position to retire earlier! My
experience has shown me that:
You have to live
somewhere.
We all need somewhere to
live. The simple choice is whether to rent or buy. Renting offers none
of the potential capital gains that can be made from owning your home.
If you are an expat I would still advise purchasing a property simply
as a hedge against future movements in the property market. This
investment would make up part of your total asset portfolio but not your
investment portfolio. It's important to make the distinction between
property brought to live in versus investment property. But still
buy it! It is still an investment even if you want to keep it for your
own use in the medium to long term.
They don't make land anymore.
With growing populations
the demand for housing continues to grow. The demographics indicate
that land will continue to increase in value. So the upside potential
for freehold or long term leasehold land / property as a long term
investment look good. This is a generality take a look at my article on
what and where to buy for more information.
Leverage your money.
Due to the relatively
secure nature of property/land assets, Banks and lending Institutions
are willing to offer finance The process is generally painless and it is
normally easy to gear an investment at attractive rates of interest. In
fact in many cases the banks do not insist on regular repayments of
capital being made. Consequently the yields that can be achieved based
on the capital invested can be very attractive and in many cases can be
in excess of 10%pa. There are also potential tax benefits in financing
a property investment..
An income producing asset
A major attraction of a
property investment is that you can turn it into an income producing
asset by renting it out. This provides for a regular income as well as
the potential for capital growth.. For many retirees the rentals can
provide a retirement income whilst the capital growth can provide a
hedge against future inflation. All of this makes property an attractive
medium to long term investment.
Inflation proof and you can touch
it!
Historically property has
outperformed inflation. It can be said that stock market investments
have outperformed property but in many cases this has only been achieved
by an substantial increase in the annual volatility of the asset and
therefore an increase in risk. Timing of property acquisition is
important but maybe not as crucial as many other asset classes .
Another major benefit of property investment, unlike stock and Bond
investments, is that you can actually physically see it, which gives a
certain amount of emotional security that you often don’t get with other
forms of investment.
Low risk long
term investment that you can enjoy.
If you can hold onto a
property through the downtimes the good times will come back. Property
has been a cyclical market that normally outperforms it's previous highs
(barring pivotal events such as war or storms!) A good long term
investment that, in the case of holiday properties, you can also enjoy.
So property should be
part of your portfolio here is a check list of key items to consider
when investing:
How much do you invest into
property?
Asses the % of your
portfolio you want to have in property. The % changes depending on your
risk profile, your age, your income, your wealth. My broad advice would
be at least own one property, either the one you live in or the "hedge"
for where you may want to live. Maximum make it 50% of your gross
assets. If you want to retire early then get close to this level.
Think liquidity
Property takes time to
sell. You should view it as an illiquid asset. In some cases this
won't be the case but better to look on it this way. The people who
loose in property are the forced sellers. It is not always possible to
time the market so make sure you have the cash to wait out any market
downturns. It will come back!
Think Currency hedging and gear it!
I would suggest gearing
any property investment with a mortgage or where mortgages are not
available then using other securities. This hedges against currency
movements if you are buying abroad.
Work out expenses
You will need money for
the expenses involved in the purchase. Initial purchase costs,
maintenance, covering void periods. be realistic about these cost and
make sure you have the liquidity to cover these and the income to cover
interest payments etc.
Keep focused on your goals
If you are buying for
investment purposes then try and keep focused on this. The key is to
get good yields and occupancy. Also have an eye for the opportunity for
capital appreciation.
So I would conclude that
you need to get property into your portfolio, it's generally a low risk
but higher yielding asset and offers the security of income. If you get
the where to and what to buy equation right then it will lead to good
gains and that early retirement.
Where to buy and what to
buy are the other key issues? I deal with this in other articles.
Good investing!
Copyright 2005©Dave
Wiltshire. All rights reserved.
David Wiltshire has been
an Independent Financial Adviser (IFA) for over 20 years, running
successful practices in both Europe and Hong Kong. He has worked on
property financing and purchasing. He is a Director of VestaLand, a
boutique property developer focused on emerging European markets.
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