Property and Real Estate

Property Investments

Deciding on investing in the property market is all well and good but the idea of making a property investment is to get a return on the investment, otherwise you have simply turned a liquid asset (money) into a fixed asset (property or real estate).

Without going into property development there are really 2 main ways to realise an investment in other words to get some money back out.
1. You could wait until the property increases in value and then sell it. In this case the money you paid for the property plus any expenses during the ownership should be less than the money that you sell it for when any costs are taken out. Costs during a sale may be solicitors fees or capital gains tax, sometimes known as CGT.
So a simple equation can be used:

Possible current or future sale price of property or real estate
Minus
Cost of purchase(purchase price, legal fees, survey fees etc.)
Minus
Ongoing ownership costs(mortgage payments, maintenance costs, buildings insurance, utility bills etc.)
Minus
Cost of sale(estate agent fees, legal fees, CGT etc.)

Depending on a >buoyant market< and if you buy a property >BMV< then an investor is sometimes able to make a profit in a very short space of time, sometimes within days, rather than months or years.

Or

2. You could rent the property out in order to get an income from the property, usually known as >rent<. Of course then the equation becomes slightly more complicated.

Projected future value of property or real estate plus rental income for the period of ownership.
Minus
Cost of purchase(purchase price, >legal fees<, >survey< fees etc.)
Minus
Ongoing ownership costs(mortgage payments, maintenance costs, repair costs >buildings insurance< etc.)
Minus
Cost of acquiring >tenants<(estate agents or advertising)
Minus
Any tax on rental income
Minus
Cost of sale(>estate agent fees<, legal fees, CGT etc.)

When you buy a property for renting you would probably get a >buy to let< mortgage which may be >interest only<. This keeps the monthly mortgage payments as low as possible compared to the rent being payed.

If you buy a property as a long term investment, let’s say over 10 years then it is normally assumed that all things being equal the property value will increase. So the property will realise a healthy return on the capital invested.
If you can get enough rent to cover the cost of the mortgage and the regular maintenance and running costs then the property pays for itself during the ownership period.