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Loading ...Types of Property Investment
Posted:Abigail Andrews – Thursday, April 26th, 2007
You have 5 main choices when investing in property:
- 1) Residential Buy to Let
- 2) Property Development
- 3) Land Purchase
- 4) Commercial Lets
- 5) Holiday Lets
I will discuss each of these in the following sections but for now I have some bad news to break to you.
Your home is a Liability!
The sixth item not on the list which could be thought of as property investment is your home. Property Investment does include your current home. However, there is a distinct difference between the investment you make in your home and an investment made in a second piece of land or property.
Strictly speaking, your home is a Liability. This is because every month you pay money out in terms of your mortgage. Your home does not create a stream of revenue. Yes, it does go up in value, most of the time, but, most people just leave that money sat there in the bricks and mortar, doing nothing. Your home strictly speaking can not form part of your property investment portfolio.
How much does your home cost you?
"WHAT!?!" I hear you say. Well, here is a short explanation. I just paid my mortgage, I fixed the leaking toilet, I paid the bills, and bought some flowers to replace the dead ones in the garden. How much do your house related outgoings cost you every month? I know mine cost me far too much! We keep striving to buy bigger and better houses that cost more and more to maintain, and think of it as our greatest investment! Sorry to tell you, its not! Ok, while my "home" has value, it's not creating income for me. It's creating wealth, which most people, including me, will probably pass onto children. The only way I can gain access to it now, is to go deeper into debt, or sell it and find other accommodation to live in.
"But I have to live somewhere, and surley owning a property is better than renting?", your completely right, you do have to live somewhere, I agree, and a home should feature in your portfolio of property investments, but, it should not chew up all your money every month and leave you with nothing to spare for other investments.
Home v Investment Property
If you still do not understand, here is the difference between your home and an investment property.
If you purchase a Buy to Let Property, it has the potential to create a stream of revenue. If your mortgage and expenses, like landlords insurance and maintenance costs, amount to £420 a month on your buy to let property, and your tenants pay £500 a month, you make a small profit of £80 a month. A rental property is truly an investment and money-making asset. The only way a home makes money for you is in rising value which to be realised has to be sold.
Ultimately, yes, it is always wise to invest in the bricks and mortar you live in, but try not to get mortgaged up to the hilt, as that money you pay off your home mortgage every month is a liability, you could be using it to invest somewhere else and generate a revenue stream.
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