Property – is one of the most common types of investments, alongside bonds and shares. Property investment takes many forms, from pooled funds for buying a development for re-sale or property to let out.
This article outlines the potential risks and rewards of investing in property.
Buy-to-let investment is different from owning your own home. When you become a landlord, you’re effectively running a small business – one with important legal responsibilities and thought to be a longer term investment.
A property with potential to re-model and update in the attempt to make a profit, when done correctly the risk to reward ratio can be considerably higher and with quicker returns on your money than a buy to let investment.
Buy to let – earning income by letting out property to tenants.
Selling for profit – buying a property/development and selling for an increased sum.
Even if you don’t want to buy a property yourself, you can get these potential benefits indirectly by investing in a property fund that invests directly in property.
Property prices – go up and down. That’s why direct and indirect property investments are for the long term. If you’re willing to wait, you can ride out the losses in a slow housing market and earn profits again when times are better.
If you’re over-invested in property – for example, if most of your money is tied up in a buy-to-let property – you might end up in trouble when housing markets slow. To avoid this, you should diversify your portfolio by holding different kinds of investments.
Diversification – spreading your money between different kinds of investments (called ‘asset classes’) and different kinds of investment property – helps reduce the risk of your overall investments (referred to as your ‘portfolio’) under-performing or losing money.
Before you make any decision about investing in property you should find out as much as you can. You can research the potential pros and cons on your own, or take professional advice.