If we used the same £50,000 and invested it into a prpoerty then we could purchase a property that was worth approximately £160,000.
As mentioned previously, this is achieved through using a mortgage or other lending facility. Given the current market conditions, let's assume that the property market also increases in value by 7% per annum (even though it increases at a higher rate in normal market conditions).
After 10 years the property has increased in value from £160,000 to £314,744 (say £315,000). Our original investment of £50,000 is now worth more than £265,000. That is a return on our investment of over 500%!
However, we must consider that we will have interest to pay in borrowing this money. But the great thing is that this cost will be covered by tenants who will rent the property from us and there will almost be a surplus income which we can spend however we want.
Therefore our investment has significantly increased in valueover time and it has given us additional income to help improve our lifestyle.
The most important thing is that the property will be tenanted as much of the time as possible. Therefore it should be in areas of high rental demand such as City Centres, close to good transport links, nearby bars, shops and restaurants or close to University's and office districts.
A typical yield we look for is 8%, this equates to an annual rental income of £8,000 or £667 per month. The typical deposit needed to buy this property would be 30% which equates to £30,000. This means we would need to borrow £70,000.
The interest payment on this would typically be around 5% per annum. This equates to £3,500 per annum or £292 per month. Monthly rental income (£667), minus monthly mortgage payment (£292), equals £375.
Let’s assume monthly costs of £75 per month. This equates to a net income of £300 per month which we can use how we like. Once we build up a portfolio of say five properties we have an extra monthly income of £1,500. This doesn’t even take into consideration the capital growth discussed earlier.
Investing in property is both useful and flexible for many reasons. Aside from the obvious financial gains, it can be used to help you achieve specific goals. For example, if you want:
Realising this will help you plan an investment strategy and work towards achieving those financial goals.
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