When clients are wondering whether they should invest in a property or not one of the questions many tend to ask is: is there any risk attached to it?
The answer is yes. Of course there is a risk attached to it, there is risk attached to everything you do.
The only guarantee you have in life is death.
What most potential investors completely fail to do is to analyse the risky position they are already in. The illusion seems to be if they do nothing but stay in their current position they are somehow risk free.
If you have money sitting in the bank is that counted as risk free?
Not if your money’s in a Cyprus bank account it’s not. And what exactly does risk free mean? If you have £100,000 sitting in an account and it grows by a few thousand per annum does this mean that your money is risk free?
Inflation is a reality that investors have to cope with in a developed economy such as this.
_____________________________________________________________________________________________________________________________________
It is said inflation is a slow, silent killer, which gradually erodes the value of money, and in turn the value of accumulated savings. Inflation can erode wealth over the years.
_____________________________________________________________________________________________________________________________________
To accumulate wealth, it is necessary for the year-on-year growth in accumulated savings to be higher than the inflation rate. If your accumulated savings are growing at a rate lower than the inflation rate, your savings corpus is actually shrinking as the value of the pound today will be lower than what it was at the beginning of the year. The pound today will fetch lesser goods and services than what it did a year ago due to inflation. Hence, beating inflation is very important for any investor.
In addition many services which used to be free are now having a price attached to them; for example university education and some services which used to be free on the NHS. So the cost of living is increasing in ways which cannot be measured by inflation.
Some economists argue that printing more money will not address the fundamental problems underpinning struggling economies. It has damaging effects in the long-run in terms of capital accumulation, output, employment, and living standards.
The above scenario paints a risky picture and the situation many face by doing nothing. By default doing nothing and leaving your funds in the bank is doing something, and the chances are your capital is being eroded month on month.
_____________________________________________________________________________________________________________________________________
Before the economic downturn people were able to buy proper ties without putting down a single penny from their pockets just by taking advantage of the liberal lending terms. After the crisis the lending terms changed and as a result there was a lot of fear in the market. However this has changed over time and property prices in London have continued to rise.
_____________________________________________________________________________________________________________________________________
Warren Buffett says: “Be fearful when others are greedy, and be greedy when others are fearful.”
Right now the market is fearful because of the news in the press and uncertainty.
We see this as a good opportunity to buy and hold on to good properties in central London.
Property investment if done in the right way will act not just as a safety net but has the potential to propel your finances even higher than you expect. An example is a one bed flat we purchased for a client for £230k in 2011 and converted into a two bed flat is now worth £450k.
Another example is a block of flats we bought in 308 Kilburn High Road for £2.675m in July last year and is currently valued at £4.765m. The lender has now agreed to lend us £2.7m on this property. It’s a good security with £260k coming in rent, with £180k guaranteed for the next ten years rising with RPI and the rest on short term ASTs. The investors will get most of their invested money back and still own a good property giving a constant income. The great thing about this deal is the money for the works was supplied to us by a housing association in return for renting the property out for ten years.
Very simply, money can be printed and distributed, as demonstrated by the rounds of Quantitative Easing we have had. Land and property cannot as there is a finite amount of it, therefore it stands to reason given enough time it will always rise.
Of course this is not a reason to purchase a dud property, it should be bought with care and proper due diligence, following the first three rules: location, location and you guessed it location.
_____________________________________________________________________________________________________________________________________
Deciding to invest in property can actually be a lifeline to get you out of your cur rent situation, the sad thing is many don’t even appreciate they are in a predicament.
_____________________________________________________________________________________________________________________________________
Doing nothing in the current situation may mean you will end up behind, financially, in the future.
It is said if you don’t move forward in life you go backwards. This certainly seems to be the current situation.
Property has been the saving grace for not just investors who wish to have a solid financial situation in the future, but for those in business; having a property portfolio can be a solid cushion when times get bad. In business there will be always ups and downs, many of those who have appeared in the Sunday Times rich list have property to thank for their success. If it wasn’t the reason for their success it often was the reason why they could stay in business through bad times.
Investing in property has risk attached to it, but what is the risk attached to doing nothing? This also comes down to human nature. For example many do not see the importance of exercise until the heart attack comes. So if doing nothing is not acceptable in any area of life, why do we accept this when it come to our finances?
The Real Deal
Knightsbridge, London, SW1X
Purchase Price: £1.5m
- A beautiful two bedroom flat in a red brick mansion building
- Long lease
- Properties in this location are being sold for £2,200 per sq. ft. and above while this property is coming at £1,437 per sq. ft.
- We believe the value of this property to be around £2m
- This property is ideally located within easy walking distance of Sloane Street, Harrods and Sloane Square
Call us now to secure this deal!
Suresh Vagjiani
A Property Investment Company
_____________________________________________________________________________________________________________________________________
!Tips of the Week
In the current environment take care of your wealth and your health, the state will not do this for you!
Discounts are not the only means to make money in property, at times you need to see an angle which no one else sees.
_____________________________________________________________________________________________________________________________________
