Look across the investment market – go on we dare you – what do you see? Falling share prices… unstable stocks… depreciating property values… pretty deterring isn’t it? But take a closer look.Yes, the market may look like it is taking a stumble, but in fact, now is the best time to invest. It’s true.
It is just a question of: which one can offer you the most guaranteed returns?
Let’s break down these investments for a moment into their most simplest features:
• Stocks and bonds: 5-6% annual returns, based on value appreciation potential and low/non-existent dividend/interest returns
• Real estate: 10% annual returns, influenced by inflation and property rental yields.
Which one do you think looks more appealing? We know which one we would choose: Property investment.
In an investment market that has witnessed daily drops of 18-100 points in the London Stock market you can offer yourself a safer choice: buy-to-let.
The property market is incredible. And we are not just saying that. Give us just 6 statements and we’ll prove to you why property investment can provide you with all the gains, and none of the losses:
Invest in any property, and you’ll find more often than not that the deciding factor between you sealing that deal or looking elsewhere is your properties rental yield.
In basic terms, your rental yield is the percentage yield from your rental income. This can be calculated in 2 ways: either through gross or net.
We recommend you choose the Net rental yield, as it will take into account all your expenses, taxes and other costs, and will work out your profit by dividing it by the property value/cost.
But there is more.
To truly work out the profitability of your properties, there is one more equation you need to do first: Cash-on-Cash rental yields.
Why? Simple. To compensate for the negative cash flow of your first equation.
When you work out the Net rental yield it has one flaw – it doesn’t include your mortgage repayments. That is why if you do choose to work out your rental income using your properties Net rental yield, you will also need to look at its Cash-on-Cash rental yields too.
By doing so, you can look at the same property; the same expenses, and see how much of a difference your mortgage repayments are making to your income. Once this is completed you can compare the two and work out your real profits.
We know… it sounds complicated but compare it to what you could earn from stocks and this 6.4% return (on the average rental property) can exceed all your stock dividend yields all on its own. Not from 2 or 3 properties. No. But from 1 property all on its own. Incredible!
We may currently be in a state where house values are depreciating, but remember… history always repeats itself.
Look over the last 50 years and you’ll soon spot a similarity… 3 credit crises. 3 crises that have each recovered from themselves and have led on to another property boom. So yes, the market may be down now, but give it ten years and we’ll be seeing house prices of the same value as 2007 all over again.
Appreciation is everything, and is a key component to succeeding in property investment. Why? Because rental properties normally appreciate in value as inflation rises. It’s true.
When your property inflates in price, it could provide you with the equity to invest in another property. No extra loans. No extra debt.
Your properties will essentially pay for themselves!
As we have just mentioned, rents usually increase with inflation, but did you know that with this inflation you can experience greater profits as your mortgage repayments will remain the same?
You see when you took the loan, you agreed to a fix rate on your repayments for a fixed period of time. So whilst this will remain at a set price, your rents won’t. They will keep appreciating with inflation, giving you increased cash flow. Great!
But this is not the best of it. No, not by far. Whilst inflation is up, so will your tenancy. Confused? We’ll explain.
Inflation can have a negative impact on house prices, making them unaffordable to buyers. And if they cannot buy, they will rent and if more people rent, rents can escalate with them.
Consider this scenario for a moment. If you could buy 3 properties all for £100,000 – would you invest in them, especially if you knew they could all generate you a positive income? Or would you choose to invest this £100,000 into just 1 property?
Which one would you choose? The one property? Wrong. It may look more impressive but of the two choices you could potentially earn greater returns from these 3 smaller properties. Why? Simple. Their rental income.
Combined together, they have the potential to earn you higher returns than this one singular property. Yes, we know. It’s crazy!
Paying down the loan
Never heard of it. Not many investors have, but it is another important feature of making your property investments work to your advantage.
You see by ‘paying down the loan’, this will free up more of your investment resources and increase your leverage choices.
In other words, it will free up your equity enabling you to invest in elsewhere and build up your property portfolio.
Would you believe most investors choose run down properties in order to attain a better bargain? It’s true! And most of the time, we would have to agree with them. It is all about working out your costs.
So if your property for example, contains a missing feature that will one, cost you little to replace/add and two will increase the value of the property, then invest.
All you need to remember is that if you want to achieve the best returns you need to calculate the repair costs. How much will it cost to get it up to scratch? How long will it take? Will it make any difference to the rent ability of your properties? Yes or No?
Once you know, go for it and the rest will develop from there.
And this is all it takes!
We know… there is a lot to take in, but the returns you could acquire from property investment by simply bearing these 6 features in mind could be limitless.
So give yourself something that is guaranteed, steady and is 5 times more profitable than stocks: buy-to-let.
We have made a selection of various property markets (USA, Irelan etc..) that are currently ideal for real estate investors and can give you a good 7-10% rental yield. Check on www.ourbestinvestments.org/real-estate/ for more info.