DavecUK With high inflation, miniscule savings rates and relatively low borrowing costs, house prices will rise. The wealthy need to put the money into capital assets. What better asset than a house, that they can then rent out to people who can no longer afford to buy one.
Can of worms, that. Investing in property certainly can be very profitable, but there’s a lot of gotchas you risk, too.
Buy the rifghthouse, in the right area, at the right price and in the right time = goldmine. And lots of people have done it.
But …. it can be expensive. Get the wrong tenant and it can be an utter money pit, as some will pull all sorts of stunts, and cause huge amounts of damage, specifically to force you to evict them. Why? If made “homeless” by quitting the property, they are a very low council rehousing priority. If evicted, and I mean removed by court order and bailiffs, they’re a high priority. So they can really want to be evicted, and some don’t care how much property damage they do in the process of “forcing” you to evict, which in itself isn’t an entirely cheap (or fast) process. Nor, to be honest, should it be.
Then, unless you do it all yourself, there are going to be management fees for finding tenants, vetting them, getting the rent, sorting maintenance issues etc and that’s before the necessary insurances, and so on. And tax, which can be an issue.
So yeah, it can be a goldmine, especially if you do it as a full time job and/or at some scale, but for just one or two properties if you have to pay agents, well, it’s much more of a gamble.
Also, the timescale involved can be critical. Over a long enough period, property pretty much inevitably goes up but in the short(-er) term, it can be very volatile. We can’t always see house price crashes coming, so if one catches such a buyer by surprise, that buyer had better have the money to hold until prices recover, which can be many years, and to service the property and any financing in the meantime. A lottery winner buying outright is one thing, but pretty rare. The more common technique of buying, refurbishing, letting and using capital growth to secure more finance to buy another can leave you seriously leveraged. If your cash flow fails, such as with an economic crash, and renters not paying rent for months (until you evict) it can also be a house of cards (pun intended) that comes tumbling down extremely fast.
It certainly can be very profitable, but it can also be an unmitigated disaster. I’ve seen it happen, to both individuals with a single property, and to one with a whole empire. The former got out with having made a very small profit over many years, and had a nightmare of hassle. He;d have been better off in a building sciety and much better off with a wellmanaged stiock portfolio. The latter went from a life of Ferrari’s to pauper in a few months by over-extending, and getting caught in a crash.
Who here knows for sure if we’re heading for an economic crash of a type and severity to crash house prices? I don’t, not with enough certainty to risk ending up with a property(s) I can’t afford to keep, but is worth half what I paid for it so I can’t afford to sell it either. Seen that happen, too.
