The appeal of investing in property

The appeal of investing in property

We have researched a couple of recent articles in the national press and put the following together. Property data company IPD claim that over the decade to the end of 2012, property has provided an annualised return of 11.2%, compared to 5.1% from equities and 7.6% from bonds.

Many buy-to-let investors are raking in profits. LSL’s latest BTL Index reveals that monthly rents in England and Wales reached an all-time high. Meanwhile, the number of new tenancies across England and Wales in September increased by 9.2% compared to the same time last year. Research from buy-to-let lender Paragon found the average rental yield for buy-to-let landlords from June to September this year was 6.4%.

Phil Tily, executive director and head of UK and Ireland, IPD, says: “The residential investment sector is one of the few areas of the market where both rents and capital values now exceed their boom time 2007 peaks. Our numbers show that values are now, in fact, 11% higher than during the last market peak. ”

One advantage of property investing is that you can buy an asset worth £150,000 with a 25% deposit and borrow the rest. If the value increases by 3% a year, your gains effectively quadruple. Bear in mind, however, that if property prices fall, the losses can be catastrophic.

Case study: ‘Neither of us ever paid into a pension’

Jane and Russell Wood, aged 65 and 69, are among those favouring property to fund their retirement. The couple bought an old farm in Monmouthshire 25 years ago for £90,000 and restored it and an adjoining barn, which they now use for weekly holiday lets. This provides them with an annual income of around £20,000.

Mr Wood, a former racing driver, says: “My wife used to be in the rag trade, and after we got married and I stopped racing, we started up shops selling jeans around London. When we moved to Wales we bought and sold antiques at the major fairs around the country to supplement our income.

“Neither of us ever paid into a pension because we knew our money would be subject to the vagaries of the stock market, and we have a lot of friends who have lost money through pensions. Property just seemed more predictable and gave us greater control.”

The couple plan to sell their home for £795,000 and put some of the proceeds towards buying a new small holding in Ireland, while using the remainder to fund their retirement.