CHAPTER THREE: WHAT TO BUY–ASSESSING OPPORTUNITIES

Synopsis:

Chapter three, What to Buy, provides a basis for developing an investment strategy and gives some simple tools for assessing the attractiveness of a specific property investment opportunity – how to tell what makes a good investment. The chapter then compares investment and speculation and examines different ways to profit from property. This examination includes sections on rental yields and practical considerations involved in renting out property abroad (such as deciding which type of rental scheme will best suit your needs); capital appreciation and resales; and a general overview of profit in property and how to calculate the potential return on an investment.

Chapter three then considers the pros and cons of old property, new build and off-plan, how to select a development and how to safeguard an investment. This part of the book is also where you will find discussion on the potential risks of buying abroad and ways in which these risks can be minimised - either through diversifying and building a portfolio, or through a collective investment scheme. Various different schemes are considered, the most obvious example being Real Estate Investment Trusts (REITs).

Extracts:

“The Oxford English Dictionary defines an investment as ‘a thing worth buying because it may be profitable…in the future’. This is often the interpretation taken by most people, but a better financial definition is ‘the purchase of an asset which produces a financial return in the form of income.’”

“In countries like the UK and the US, people often think of their homes as their biggest investment. This point of view is based upon the assumption that your home is an asset because it may increase in value. This point of view is not only wrong, it is the exact opposite of what is actually the case; your home is a liability.”

“…in answering the question of what to invest in, we can clearly say, invest in assets. In the context of property this means investing in property which generates a net cash inflow which can be reinvested into more assets that also generate cash. This is the virtuous investment cycle. If you keep reinvesting income from your assets into more assets, you will eventually be generating enough cash to live on.”

“As we saw in the previous paragraphs, there is a difference between investing for income and investing for growth. When deciding what type of property to buy, you need to consider how you intend to profit from the investment. Below, we look at the three main ways in which property can generate a return on investment; rental yield, capital appreciation and profit.”

“Buying for rental income is probably the best long term investment strategy available. Not only can the cash generated from the investment be used to re-invest into additional assets, it can also be more profitable than buying and selling property.”

“If you keep a property, over time it will increase in value as will the amount of income you make from it. The value of your assets will grow and you will incur no tax or costs for the privilege.”

“Letting a property abroad can be a hard slog. Setting up websites, finding tenants, arranging advertising, taking enquiries, finding someone to take day to day care of the property… The anxiety of trying to control events from a distance can be difficult. However, this doesn’t have to be the case.”

“Research suggests that more than three-quarters of potential international buyers want to buy either an off-plan or new-build property. Whether to look for new-build or older property is a question that depends on your reasons for buying. Putting aside the question of personal preference, this is about working out which type of property will be the best investment in any given area.”

“There are simple measures that you can take to ensure that you are making the right choice of development.”

“[M]ost risk lies in ignorance. Investing in almost any part of the world can be safe provided that you know what you are doing and that you take due care and consideration.”

“Collective investment funds have numerous benefits, not least of which is that someone with only £20,000 to invest could gain access to the sort of returns only usually available with larger scale investments.”