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Making Property Work For You

I recently heard an investor talking about his accidental savings account and thought, 'how true this is of property investing'. The magic of property is that it contains 3 equally important ingredients: leverage, inflation and time.

Taking leverage first, this applies to both the bank and the tenant. A Buy To Let investor usually leverages a 25% deposit with the bank providing the remainder, assuming rent covers over 125% of the monthly mortgage. So on a £200,000 house, with a £50,000 deposit, you’d need above £785 per month rent (based on a typical 5% interest only mortgage). This rental value is certainly achievable in Cambridgeshire. By leveraging your tenant they will be paying your mortgage whilst hopefully also giving you a profit every month.

Unlike with our shopping and bills, where inflation is the ever-present irritation increasing our costs, for property investors inflation represents quiet eroding waves eating away at the value of our fixed debt. After say 25 years the value of that fixed debt will be a fraction of the original, thanks to inflation; quite a thought.

That brings us to time, the other great ally of the property investor. Property investing is a long-term game and whether we bought cheap or even above the market price, time will eventually erase any mistakes made. Experience shows it is only a matter of time before prices rise again. We have seen it here in Cambridge where prices are at least 11% above their 2007 level. By holding on long term you will reap the benefits and this will become your accidental savings account.

If you have any property investment questions, please let me know. 

Christine Hertoghe hosts the monthly Cambridge Property Investors Network meeting in Impington, the next being on 27 March.For details see www.cambridgepin.co.uk and use free voucher code CAMBRIDGE to attend.

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