Why do people advise to invest in property?

Jonno118

Why do people advise to invest in property rather than savings account gaining interest? You could lose money on a house if prices crash but you know you will be gaining interest every year and still have capital intact if kept in multiple savings account?

dunstonh

Why do people advise to invest in property rather than savings account gaining interest?

Savings are subject to shortfall risk and inflation risk. Investments add in investment risk but are more likely to avoid shortfall risk and inflation risk.

00ec25

do you understand anything about investing?

investing in any form of asset (property, shares, gold, artwork, etc ) means you risk losing your capital as well as the rate of return not living up to expectations

"investing" in cash based deposits means you are exposed to inflation and shortfall

so what is it you actually want to know and who are "people"?

melbury

Jonno118 wrote: »

Why do people advise to invest in property rather than savings account gaining interest? You could lose money on a house if prices crash but you know you will be gaining interest every year and still have capital intact if kept in multiple savings account?

Do they still advise investment in property then? Housing market seems to be pretty stagnant, not like the glorious days of the 70's and 80's.

talexuser

Exactly, for many many years property was the only way for ordinary people to get significant assets for a downsize at retirement to leave you much richer than saving at virtually no risk. This changed for buyers during the first negative equity downturn during Major's government. Since the big bang and the wild swings of boom and bust since then timing has been critical in buying and paying off the mortgage. Recently the buy for let route has been flavour of the month, (maybe driven by DSS payments?). So property for investment nowadays has more risk than years gone by.

guesswho2000

I invested in property as I needed somewhere to live I suppose I could have built a shelter out of bank notes...:rotfl:

In seriousness though, I can't see house prices dropping drastically, they'll continue to stagnate for a while but I don't see a crash. End of the day, people need places to live, we've got limited space in the UK and increasing numbers of people, therefore supply and demand comes into play = price increases over the long term.

Nicholas-bloody-Parsons

Investors in property can "leverage up". Ie borrow against their "investment"; usually via a buy to let mortgage.

It allows you to turn your (say) £25k in savings into a £250k house. You then service the loan via the rental income and hope to profit from a rise in the market.

If house prices double you sell for £500k, pay back the £225k mortgage and walk away with a £250k profit.:rotfl:

This relies on the delusion that house prices always rise; which they dont. :cool:

jimjames

Jonno118 wrote: »

Why do people advise to invest in property rather than savings account gaining interest? You could lose money on a house if prices crash but you know you will be gaining interest every year and still have capital intact if kept in multiple savings account?

I know what I'd prefer and it isn't a savings account only earning 2% interest.

If you want security of capital you need to be aware that the purchasing power value of that capital will decrease year on year due to inflation. Your £1 back in 1970 that could buy you 10 loaves of bread will now only buy you one. Is that capital really still intact?

Investing in property may have short term fluctuations but rents will normally keep pace with inflation.

The_Earl_of_Streatham

00ec25 wrote: »

do you understand anything about investing?...

Presumably the OP doesn't, but has taken the trouble to find something out by asking questions. There are no stupid questions...

I suspect an important aspect which draws people to put money in property is that it's the only asset class that banks will lend you money to invest in. If I want to buy Acme Widget shares (which I am assured only ever rise in value) and approach a bank for a loan, or even if I want to set up Earl of Streatham Enterpises and approach the bank for risk capital, they'll have a good laugh and send me on my way.

Buy a house as a BTL, it's still risk capital for a business and will attract a bit of a premium (easily covered by the taxpayer in mortgage relief) because of it, but no problem from the bank's point of view.

Thus, many years of misallocation of capital away from productive enterprise into the hands of the rentiers and hey presto you have what Will Hutton described in today's Observer as a first order crisis of capitalism.

That's the cynic in me talking. The realist says that anyone advising you to invest in property already has a hefty stake and realises that ponzi schemes rely on new entrants.

Gromitt

Jonno118 wrote: »

Why do people advise to invest in property rather than savings account gaining interest?

I do have money in savings accounts, but you've got to agree, the current interest rates don't even match inflation, so by keeping all your money in a savings account, your actually losing money.

Compare this with the 95K I spent on a property last year at auction. I spent 5K on it and sold it for 120K. All done and dusted within 7 months. Show me a savings account that pays ~40% AER and I'll gladly take one out. If I wanted to be a land lord, I could have possibly rented it out and made more money over a longer period of time, but thats not my thing.

innovate

Nicholas-bloody-Parsons wrote: »

If house prices double you sell for £500k, pay back the £225k mortgage and walk away with a £250k profit.:rotfl:

This relies on the delusion that house prices always rise; which they dont. :cool:

...and the delusion that there will be no inflation whilst you wait for house prices to double.