The UK is bigger than you think. Know your areas!
It is an extremely risky strategy to only rely on capital growth of a property as a source of income. Couple this with how many investors rely on a single source of clients (or tenants) to provide them with their rental income, can leave people with no income, or worse still, a situation of lost capital.
Here are two examples that demonstrate why this is never a wise approach to property investing:
There are areas of the UK that do not grow in value. I know of an investor who held a property for 13 years and, when he went to sell it at the beginning of 2017 it was worth exactly the same as when he purchased the property 13 years earlier. His rental strategy had been an un-dynamic one, whereby he had just covered costs for the 13 years. He wasn’t in a loss situation, however hadn’t made any income or capital growth in 13 years.
Another investor that I met recently purchased 10 properties in an area of the UK that was dominated by a particular industry. The area also hadn’t seen capital growth, however there was a large demand for rental accommodation so the properties were always tenanted and provided good income. Sadly, the manufacturing plant closed and, therefore, the demand for labour disappeared, as did the need for rental accommodation in the area. The workforce moved out and left many properties empty with no income. To make matters worse, as there were so many landlords in this situation, the market flooded with properties for sale and house prices dropped to less than the investor had paid for them.
At Inspired Equity, our investment strategy is different. We don’t rely solely on one client type and we don’t invest heavily in areas that are mainly driven by only one or two sources of employment. We only invest in locations that have multiple sources of employment and have strong infrastructure and transportation links to either major city centres, or direct into London. We also study future investment into each area, such as rejuvenation and development plans of the town/city by the Government.
A great example of this is a new train line that is planned to link two major cities in the UK. We have been investing in a town that sits right in the middle of the two cities and the new train line will travel directly through it. Not only does this give us an additional source of clients (tenants) and an increased demand for rental accommodation (which ensures a healthy monthly income from each property), but will also provide a growth in value, which is the ‘icing on the cake’.
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