Is it still worth investing in property?

My investments and opinions

(The following is taken from an interview with the National newspaper – Oct 2019)

What properties do you have, and why?

We have investments in 3 properties. 2 apartments in Scotland, currently rented out to students. They are fully managed and require very little input from us. They provide both a healthy yield and also some exposure to our home property market, given that we’re likely to return there someday. 

We also have a holiday home in France which we deem our ‘family home’. A lovely place to escape to, but not such a sensible financial purchase. We view it more as an investment in time as a family than a purely financial one.

Do they still make as much financial sense as they used to, given the challenges in property investment right now?

The rationale behind our investment properties has not changed. The yield on them is well above inflation, and they generate a significant positive cashflow. This gives us a margin of safety even if taxes or running costs do increase further. We plan to hold them for as long as we’re living as expats.

The only financial sense that our holiday home makes is that it benefits from the French mortgage system. In this era of historically low interest rates it has allowed us to fix a very low monthly payment for the lifetime of the mortgage, even on a repayment product.

Are future investment returns likely to fall?

I don’t pretend to know how different asset classes will perform in the future, so all I can do is diversify. For me, investment property is just another asset class. I don’t speculate on rising property values, but I know that rents are likely to rise over time, generally in line with inflation.

Are they still worth the extra effort (compared, say, to investing in stocks and shares)?

Property can be a hassle. Both to buy and sell, as well as to manage. That’s why I prefer also having a portfolio of other assets which require much less attention. But everything has its price, and what outweighs the hassle factor for me is a predictable yield that is well above current interest rates. For us as expats, we also had a desire to have a foothold in our home property market, for the day that we return, in order to retain our purchasing power.

Would you buy property today as a new investor?

If I were a new investor today, I would not buy property as an investment initially. I would start with more liquid assets which are easier to drip-feed money in to, then after a few years I might start looking at property, where I could see value. I might however buy property as a home. There is an emotional value in homeowning that is hard to quantify. I would view this separately from the rest of my investments.

Do you have any tips for avoiding risk and making property investment a success?

Make sure you invest with a plan and a margin of safety. Make sure that you have a strong positive cashflow every month with enough set aside for contingencies. Always think of the re-sale potential of a property. And if managing from a distance – get a good manager. They will make or break it for you. Cheapest is not always the best.

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