Leverage. Compound Growth. Rental Income

There are many reasons why property is a favoured investment in both the UK and aboard, from control, to reduced volatility, and just the fact that it is a tangible asset that can be touched and seen. However, there are three key factors that really set property apart from the other asset classes. Leverage, compound growth and income.

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A TYPICAL INVESTMENT PROPERTY

There are many types of investment property, from the functional classification of the property, be it residential, commercial or mixed use. Then there is the physical structure of the property, such as a terrace property, semi-detached, apartment or retail shop. Then there is the style of investment, from single lets, to HMO (House in Multiple Occupation) and serviced accommodation - and that doesn't even begin to cover every variation.

However, at INVESTicity, we like to keep things simple. We believe that 'simplicity' cannot be underestimated when it comes to investing. So let's take a look at a typical single let investment property:

LEVERAGE

To really appreciate the power of leverage let’s look at an example where you were to use the £37,000 but instead purchased shares (stocks) with it.

The average shares would be lucky to return an average of 5% but let’s say that they do for 10 years. At the end of the same 10 year period your £37,000 original investment would have grown to around £63,000. A £26,000 profit on your original investment.

This means we can make the following comparison:

Direct shares option: 
£26,000 capital gain or 71% gain over 10 years (7.1%p/a)

Leverage into property option: 
£94,000 capital gain or 254% gain over 10 years (25.4%p/a)

 

COMPOUNDING

After a property has been owned for six months or longer, we then have an option to re-finance, or ‘re-mortgage’. It is possible to re-finance inside this month if it can be proven that significant improvement works have been completed that increase the properties value or alter it's use.

This means we can have the property re-valued and then lend against the properties value today.

We can again choose to borrow 75% of the value (today’s value), and this is where the magic begins….

Today’s Property Price     £125,000
Deposit (25%)                 £31,250
New Mortgage                 £93,750

Old Mortgage                  £75,000
Re-mortgage Costs         £2,000
Cash Released               £16,750

So no longer do we have £37,000 cash invested in the property, we have £37,000 minus the Cash Released, which equals only £20,250 of cash invested.

Now HOW does that compare to shares?

Direct shares option: 
£26,000 capital gain or 71% gain over 10 years (7.1%p/a)

Leverage into property option after re-mortgage: 
£94,000 capital gain or 464% gain over 10 years (46.4%p/a)

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RENTAL INCOME

Not only will property give you a double, or even three figure percentage return in the medium to long-term, but it can also provide a double figure annual return from day one.

At INVESTicity, we have the knowledge and experience to offer a fully managed portfolio building service, as well as looking at short-term and medium-term options to give you a secure return on your capital. To find out more about each strategy, take a look at all of our investment options.

All INVESTicity investors and prospective investors should first read our investor statement and download a version of the self-certification form that represents their personal situation.