Why Invest in Property in 2024? 5 Important Reasons
  • September 24th, 2023

Why Invest in Property in 2024? 5 Important Reasons

As an investor, you always seek opportunities to generate strong returns over the long term. While the stock market offers the potential for high returns, it also comes with a lot of volatility and risk. Property, on the other hand, has historically offered consistent returns over time.

Why Invest in Property

There are many compelling reasons why investing in property may be right for you, and this guide explores the top five of those reasons. Whether you want to invest directly in residential developments, commercial options or real estate investment trusts (REITs), property deserves a place in any well-diversified investment portfolio.

In summary, here are five reasons why you should adopt a property investment strategy:

  1. Portfolio diversification
  2. Passive income and cash flow generation
  3. Capital appreciation and equity buildup
  4. Leverage
  5. Tax benefits

1. Diversify your investment portfolio with property.

Diversifying your investment portfolio with real estate is a smart strategy to reduce risk and maximise returns. Investing in tangible assets like property exposes you to an asset class that typically holds value well over time.

Here are four reasons why investing in property is an excellent portfolio diversification strategy:

  • Strong, Stable Returns: Over the long term, property investments have generated returns comparable to the stock market. According to historical data, private real estate property generally outperformed the S&P 500 over 25 years. Commercial and residential property provide income through rent payments and the potential for capital appreciation.
  • A Hedge Against Inflation: Property investments act as an inflation hedge since rental income and property values often increase with inflation. This means the money you earn from rental income and the property’s value tends to hold its purchasing power over time.
  • Tax Benefits: Property investments offer significant tax benefits. Expenses like maintenance, repairs, property taxes, and loan interest can offset rental income and lower your tax burden. These allowances mean you can deduct a portion of the property’s value annually, lessening your taxable income (more on this later).
  • Diversification: Investing in property diversifies your portfolio and reduces overall risk. The real estate market moves independently from the stock market, so if one market declines, the other may remain stable or increase in value. A balanced portfolio with exposure to different asset classes—such as property and shares—will typically provide the best returns over the long run.

At Baron & Cabot, our team of experts can help you find and evaluate property investment opportunities to build a diversified real estate portfolio. With our guidance, you can take advantage of the many benefits of property investing and work towards achieving your financial goals. Contact us now to get started.

2. Generate passive income and cash flow.

Investing in property can be a lucrative way to generate passive income and cash flow. When you invest in properties, you can earn money through ongoing rent paid by tenants. This means that income continues to flow in even when you’re not actively working.

Rental yield is among the fundamental property investment benefits. When you rent out your property to tenants, you can earn a regular stream of income from the rental payments they make each month. This income provides a stable source of cash flow, particularly beneficial for those looking to supplement their primary source of income or build a property portfolio for long-term financial goals.

In addition to rental yields, property investments have the potential for solid returns over the long run. Historically, rents and property values have steadily increased, allowing investors to achieve good capital growth. This means that not only can you earn passive income from the rental payments, but you may also benefit from the appreciation in property prices over time.

why investing in property

The key is to select properties in up-and-coming areas with robust growth potential and actively manage your investments. This way, you can maximise your returns and build wealth through property investments.

Indeed, utilising property as a passive income investment strategy requires careful planning and management. Proper due diligence, such as researching the local market, analysing rental demand, and assessing potential risks, is crucial to making informed investment decisions — all of which Baron & Cabot can help with. Similarly, maintaining the property, managing tenant relationships, and staying updated with relevant laws and regulations are all essential aspects of successful property investment — Redstone is a stellar property management company you can reach out to.

3. Benefit from appreciation and equity buildup.

When you invest in property, the value of your asset typically appreciates over time. As the market value increases, so does your equity in the investment. This is one of the key property investment advantages, allowing you to build wealth and generate a solid return on your investment.

There are two main ways property values increase:

  • Inflation: Property values increase as the cost of living rises. While inflation reduces the purchasing power of cash, real estate protects against inflation and retains value, making it a worthwhile investment.
  • Supply and Demand: When there are more buyers than available properties, competition drives prices up. Areas with limited land, strong job growth, and amenities like good schools are especially poised to see values rise over the long run.

With each payment you make on your mortgage, your equity stake grows. At some point, your loan balance may become less than the property’s market value, allowing you to tap into your equity by refinancing or opting for a home equity loan. You can use the cash for other investments, home improvements, education expenses, or other life needs.

Over the lifetime of a typical 30-year mortgage, appreciation and equity buildup often far outpace the total amount paid in interest charges. While there’s always a possibility of market corrections that reduce values, historically, property values have increased over extended periods. For patient investors focused on the long game, investing in property developments can be an extremely lucrative strategy for generating income through appreciation and equity.

4. Use leverage to boost returns.

One of the most compelling reasons to invest in property is the ability to leverage your investment through financing. By taking out a mortgage, you can control an asset worth significantly more than the cash you put in. This allows you to boost your potential returns.

For example, if you purchase an investment property for £200,000 with a 20% down payment of £40,000, you control the entire £200,000 asset.

Say the property appreciates by 5% in one year.

The property is now worth £210,000, giving you a capital gain of £10,000.

Since you only invested £40,000, that £10,000 gain represents a 25% return on your cash. Without leverage, a £10,000 gain on a £200,000 property amounts to just a 5% return.

You can quickly get into property investment by partnering with Baron & Cabot; you only need to make a 20% down payment alongside a £5K reservation fee. We take the hassle out of your property investment journey — including securing a mortgage, which can be more complicated for an international investor. Fill out this contact form to get started.

Maximise Returns Through Refinancing

As the property value increases, you can take advantage of your equity by refinancing your mortgage. You can utilise the equity as a down payment on another investment property, allowing you to buy more properties without investing additional cash. The more properties you control, the greater your cash flow and capital gains potential.

Refinancing can also lower your interest rate, allowing you to boost your cash flow. If rates have dropped since you obtained your original mortgage, you may be able to refinance at a lower rate. The lower interest costs can translate into hundreds of pounds more in monthly cash flow per property.

 property investment benefits

Using leverage through financing and refinancing is a powerful way for property investors to boost their returns. However, it does come with additional risks like higher interest costs and potential losses if property values decline.

As with any investment strategy, make sure you go in with your eyes open to both the rewards and the risks. Conduct thorough due diligence by partnering with UK property investment experts, run the numbers conservatively, and don’t overleverage yourself. When utilised responsibly, leverage can be crucial for generating income through property investment.

5. Take advantage of tax benefits to secure income.

As an investor, taking advantage of available tax benefits is one of the critical property investment benefits.

Property investment in the UK offers several tax advantages worth considering, including the following:

Capital Gains Tax Relief

Capital Gains Tax (CGT) is typically due on the profit made following the sale of a property investment. However, you may qualify for full or partial CGT relief under certain circumstances. For example, if the property was your primary residence at some point, you may qualify for Private Residence Relief, which exempts you from CGT on gains when you lived in the property. You can also reduce CGT if you reinvest the proceeds into another property.

Income Tax Relief

You can offset certain property expenses against the rental income to reduce your tax liability.

Allowable expenses include:

  • Interest paid on property loans and mortgages
  • Repair and maintenance costs
  • Fees for property managers or letting agents
  • Costs of travel for property viewings and maintenance

The tax relief available depends on whether the property is commercial or residential. For residential properties, you can deduct all allowable costs from rental income. For commercial properties, you may be able to claim more generous tax reliefs.

Inheritance Tax Mitigation

If appropriately structured, investment property can help mitigate the 40% Inheritance Tax (IHT) due on estates over £325,000. You can gift property to family members, place it in a trust, or invest in IHT-exempt assets like Business Relief qualifying companies. These strategies can help ensure your property is adequately passed on to your beneficiaries.

 

In summary, the generous tax benefits available to property investors in the UK present attractive incentives to build your investment portfolio. With professional advice from experts like B&C, you can develop a tax-efficient investment strategy tailored to your financial goals and maximise the long-term returns from your property investments.

Frequently Asked Questions

Is property a good long-term investment?

Yes, property has historically been an excellent long-term investment. Over the long run, property values have consistently risen at a rate above inflation.

One of the many reasons to invest in property is that it’s a tangible asset that people always need, so demand remains high. As populations grow, the demand for housing also increases. For long-term financial security, property is hard to beat.

What costs are involved with property investment?

The main costs involved in property investment include the following:

  • The initial purchase price of the property: Depending on the property, this can range from tens of thousands to millions of pounds.
  • Legal fees for conveyancing and contracts: These typically range from £500 to £1,150 or more.
  • Mortgage fees if you take out a loan: This includes the interest, application fees, and any early repayment charges.
  • Ongoing costs like property taxes, insurance, maintenance, and repairs: These can vary but often total around £5,000 per year for a typical rental property.
  • Agent fees if you use a letting agent to manage the property: Fees are usually a percentage of the rent, around 10%.

How do property investors make money?

Property investors make money in four main ways:

  1. Rental income from tenants paying rent: This can generate an ongoing passive income stream.
  2. Capital appreciation from the property value increases over time: Investors buy properties and hold them for years as they gain value, then sell them for a profit.
  3. Tax benefits include deductions for expenses, depreciation, and capital gains exceptions: Property investment allows investors to keep more of the money they earn.
  4. Equity buildup from paying down the mortgage: With each payment, the investor gains more equity in the property, which adds to their net worth.

What are the risks of property investment?

Like any investment, property investment does come with risks, including:

  • Lack of tenants
  • Damage to the property
  • Falling house prices
  • Higher interest rates
  • Tax changes

However, for most investors, the rewards of property investment far outweigh the risks, especially if you go in with realistic expectations and make informed decisions by partnering with experts like Baron & Cabot.

Conclusion

So, why invest in property?

As observed in this comprehensive guide, there are several reasons to do so. Though not without risks, property provides stability, tax advantages, and the potential for solid returns over the long run.

When investing in residential property, do your due diligence, understand your financial goals, and work with experienced professionals like Baron & Cabot. While the initial capital outlay may be higher than other investments, the rewards of building equity, generating cash flow, and achieving financial freedom make property an attractive option for any savvy investor looking to diversify their portfolio.

Property could be your ticket to generating passive income over the long term. Why not take the first step by contacting us today?

Disclaimer: Any information provided by Baron & Cabot does not constitute financial advice and is for educational purposes only.

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