I’m not terribly experienced with property (as people go) but as a college student, I’m relatively experienced. In this article, I compare investing your money into housing or other property, compared to other investment options, such as gold or stocks.
Let’s begin. Investing in property has traditionally been seen as a safe and stable investment, allowing you to build up wealth over time. This is certainly true, but the downside is that investing in property is expensive, and you run the risk of seeing your property lose value if the market falls, or if you have to sell it in a hurry, such as if you lose your job.
Investing in property is also risky because you have to deal with tenants, and I personally know people (friends of family) who have lost a lot of money renting out their property because the tenants have constantly caused damage to the property.
There are also a lot of expenses that come along with renting out a property. For example, you will have to pay council tax and you will have to pay for repairs and maintenance. There are also legal fees that you have to pay, such as if you need to evict a tenant, or if you have to evict a tenant because they are not paying their rent, it’s rare that you get that rent back in the end. Those people stagger on through life, ruining someone else’s day. From what I’ve been told, they always seem so reasonable and upstanding.
Plan for the worst
This all adds up to make renting out property a lot more expensive than people realize. People also tend to be too optimistic about how much rent they will be able to charge. They will think that because they live in a nice area they will be able to charge a lot of rent, but they forget that there’s a lot of competition, and when it comes to renting out your property you need to compete with other people who also want to get their vacancies filled as quickly as possible: low rent money is a lot better than no rent money coming in! So be realistic, and expect to lose a bit of money on your first few attempts. You’ll be less disappointed, and it won’t surprise you financially at a bad time.
Gold
Now, let’s consider the other investment areas that have been traditionally seen as “stable”. Gold is a great example, people generally buy it because they think it’s safe, but gold can actually be a terrible investment, when times are good.
If you compare it to the stock market, gold is a stop-loss at best. You need to go back to the 1970’s to see that the stock market has made much more money, but gold is always there to give you a good feeling. You have to remember that gold is an investment that is based on the amount of people that think gold is a good investment, so the more people that believe gold is a good investment, and the more people that want to buy into gold, the more the price of gold will go up on average. If you look at the history of the price of gold, you’ll see that the price of gold over the last 10 years has been pretty much boring.
Stocks
What about stocks? If you look at the history of the stock market, you’ll see that it’s been quite volatile, interspersed with periods of calm and growth. Recently, it’s been quite flat, but it’s been choppy too, and people have lost a lot of money if they’ve bought into the stock at the wrong time. There’s also the occasional madness that spreads throughout the market, as seen in the recent example of Game Stop, where thousands of Reddit users pumped the stock up, ruining some hedge funds that were shorting the stock, causing international headlines and forcing the regulator to make threatening noises. All this is a bit much for me, even though I’m young, I don’t fit the stereotype of the chaotic day-trader. I like to place solid investments once or twice a year, after careful consideration and consultation with my parents.
Back to property. The ideal house that you’re looking for is one that is going to make you money, and not require a lot of time to set up or maintain. Of course, the ideal house does not exist, so you have to compromise somewhere. I prefer to compromise on the initial setup effort, putting in a lot of time into not-quite “fixer-uppers”. A bit of paint can do wonders for your rental yield. Be careful though, you need someone knowledgeable and experienced with building faults to help you here.
If you’re a landlord, you’ll find that certain types of property attract certain types of tenant. For example, I found that good tenants are attracted to properties that have a garden and that are close to the town center. I also found that good tenants are attracted to properties that are near good schools. Bad tenants are attracted to properties that have no garden, and are near the local pub.
As you can see, there is a lot to think about when investing in property, and most people don’t have the time to spend all their time thinking about the right property for them.
Try to stay away from gold (unless the sky is falling), and avoid crazy volatile stocks and the ensuing carnage. Do your ‘homework’ on the properties, and you’ll have a nice long term investment that pays its own bills, and yours.