In this video I want to talk about the upside, the benefits, the things that are great about owning property and being a buy to let investor.
Number one on my list, and probably very top of my list, is the ability to be able to create equity in a property.
If you like, that’s the difference in the value between the value of the property and the mortgage, so for example, if you have a property which is worth £130,000 with £100,000 mortgage you’ll have £30,000 worth of equity. And as far as I’m concerned, although many people talk about it being on paper only, it is real wealth to you. When you have your accounts prepared at the end of the year your accountant will take that value into account when putting together the accounts and putting together the balance sheet and noting the value of your assets.
Now, the great thing about that is this though, that if you know what you’re doing, if you know how to buy a property cheap, and if you know how to add value, which I’ve covered in other videos, then that equity is magically created, it’s almost like it’s created out of thin air.
If you don’t believe me then do a bit more research around this, play with some figures about what can happen when you buy it cheap and then add some value through a refurb, for example, or by extending the property or however you want to add the value, and you’ll see exactly what I mean. One of the greatest benefits of owning an investment property is that you can create money out of thin air by adding value.
So that’s number one for me.
Number two is cash flow, of course.
I say the first one is number one but this is number one, they’re both first equal. Number one is creating cash flow.
And one of the great things about that cash flow is that if you buy the right property in the right area, if you do your research, if you do your due diligence so you make sure there’s a strong rental market with plenty of tenants then the cash flow should just keep coming.
One of the problems which I think people sometimes have is the don’t do enough due diligence and so they don’t buy the right properties in the right areas, they don’t but the right properties the tenants want. The buy the properties which they want or which they can buy cheaply, something which I covered in another video as well by the way, and then the cash flow isn’t there. But if you know what you’re doing and you do it properly then the cash flow is there.
So that’s benefit number two.
Benefit number three is a little bit more speculative, and we don’t have any control over this but the icing on the cake for any property investor is that if you buy the right property in the right area over time, hopefully, capital values will rise and that also will boost your equity and your wealth.
Now, the difference between market movements and adding value, of course, is that we’re totally in control of adding the value, but we’re not in control of market movements. We can’t go and influence the bank of England to reduce or increase interest rates, for example. We can’t do anything to change the planning system or, really, do very much to influence government, apart from vote every 4 or 5 years.
But, we live in a cyclical economy, we have a cyclical property market, and so all things being equal there will be times when the property market goes up, where there’s increased demand, prices rise, and we see the value of our properties rise and the value of our equity in those properties rise.
The fourth benefit is tax efficiency.
Now, it depends on how you structure your business, but I use the words very deliberately business because within the tax regime in the UK and in other jurisdictions around the world, you can put a lot of costs through a business which make those costs tax deductible, which can be very useful indeed.
There’s ways of mitigating our tax, but I’m not talking about tax evasion, by the way, which is illegal, I’m just talking about legal tax avoidance, but there’s ways to reduce your tax bill using property, which I won’t go into here because I’m not an accountant or an IFA, but there’s plenty of books on the subject which you can go and look at and it can be a very tax efficient way of investing and holding your money in property.
The fifth thing which I love about investing, which might surprise a lot of people, particularly politicians or political activists, is that I really feel that it makes a social contribution.
Before you start ‘trolling’ me and sending me remarks saying that all buy to let investors are parasites, and all this kind of nonsense, and that all we’ve done is pinch properties away from first time buyers, I would refute that, because pretty much all of the properties which I’ve kept in my portfolio, at the point that I’ve bought them they’ve needed a lot of work doing to them in terms of a refurb and they haven’t been suitable for an owner/ occupier.
Very typically an owner occupier may have spent a lot of time saving up for a deposit, and they don’t have the money for a refurb, and so they don’t want to buy a property which needs a refurb. So, I’ve been able to buy those properties and actually bring them back into use and let them to people who, perhaps, can’t afford to buy their own home.
And, in this day and age when there’s a lack of council housing, when councils aren’t building council houses, and council houses are being sold off, it’s the private residential sector which has picked up the slack there and provide social housings.
So, I think we can make a real contribution to social housing, without having to take properties away from first time buyers and other owner/ occupiers.
Then the last thing on my list is that but to let properties and property investing can be a fantastic route for you to be able to achieve, firstly financial security, and then secondly once you’ve built on your financial security, financial independence. One of the great things about the cash flow, of course, which you can generate from properties is that in time you can use that cash flow, hopefully, should you wish to, to be able to replace your full time income and to go full time into property, if you want to.
So, all in all I think that buy to let and property investing is a fantastic thing to do.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
https://thepropertyteacher.co.uk
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
For more details please go to:
https://thepropertyteacher.co.uk/the-successful-property-investors-strategy-workshop
