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The Pros and Cons of Investing in Property

By: J.A.J Aaronson - Updated: 29 Jun 2010 | comments*Discuss
 
Property Investment Buy Develop

The property market has dominated the business headlines for several years now. There have been numerous success stories of individuals leaving their jobs on an impulse to take advantage of buoyant prices, and ending up making a fortune. It often seems as though it is impossible not to make money in property.

This feeling is exacerbated by constantly rising prices. The crash (or, at least, slump) that some analysts had predicted has not come, and there is now more money being invested in property than ever before. However, too many people seem to forget that property investment is just that - an investment. As a result, you are not guaranteed to make any money; in fact, there is every chance that you will lose what you have put in.

Tough decision

As a result of these dangers, a decision about investing in property should not be taken lightly. You must weigh up the dangers and the potential returns, and decide whether, in your personal circumstances, you are willing to take the risk. Of course, the returns on your investment will be commensurate with the time and money you put in in the first place. However, you must judge how much money you can personally afford to lose.

Many people assume that property investment means buying, doing up, and selling on. This is undoubtedly a high-return investment, but it is also high-risk. Developers make money in these situations if they are willing to do the work that potential customers are not. As a result, it is often possible to buy up property cheaply, with the intention of putting in the effort to raise its standard ready for sale. However, there are numerous risks involved with this; spiralling building costs and difficulties with planning permission are the most common, but there are also more fundamental problems which can occur. In particular, there is always a risk that the property simply will not sell at all. If the market falls during the period in which the property is in your possession, you may stand to make considerable losses. Similarly, if you fit the property in too particular a fashion you may alienate potential buyers. As a result, it is vital to get the opinion of a trust-worthy agent before you take any action.

Buy-to-Let

Another possible form of property investment is Buy-to-Let. This involves buying property with the intention of renting it yourself, and thereby acting as a private landlord. New guidelines have meant that this is a financially more viable option than it has previously been, but there are still considerable risks. Buy-to-Let should be seen as a more long-term investment; you are unlikely to see profitable returns until several months into your first tenancy. However, the rent you receive will, of course, amount to a regular income. As a result, this can be an attractive option for those who wish to supplement an existing income, or equally for those who wish to make property development a full-time occupation. However, the same market-related risks apply as are present with selling on a property and, of course, you should always seek agents' advice first - they know the local market better than anyone. If you are considering Buy-to-Let, you may find it useful to read the other related articles on this site.

Mortgage investment

There is, however, a considerably lower-risk alternative for those who wish to invest in property. If you are already a homeowner, then there is no reason why you cannot invest in your own mortgage. Making larger repayments may not be as glamorous as some of the other options, but at the end of the process you are guaranteed to be in possession of a viable property. You could then sell this on, rent it out, or use it as a liquid asset - all without having to make the initial, single outlay needed to buy new property.

Property investment is a very attractive idea for many people. It involves taking control of your money in a way few other investments can, and it can provide considerable returns. However, before you commit to any such idea, ensure that you have taken into account all of the available options.

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