One of the most difficult decisions when investing is what you should invest in. A good investment tip is to invest in things you understand. You can invest in almost anything, but the four fundamentals are: shares, bonds, property and cash. In this section we explain a little more about each one.
The decision about buying your own home is not only a financial one. This section will consider property as an investment.
There are two types of property for investment: residential, which is accessed by buying-to-let, and commercial property, which is most often accessed by property funds. For both, the income stream is from the rental, and it is hoped that the capital value of the property will increase as well.
Whilst on average property prices have been increasing this has not always been the case, and in some areas of the UK, and wider global markets, property prices are falling.
Property is an illiquid asset. It can take months, or even years, to find a buyer for a property and then several more months to complete on the property sale. Essentially, you have to consider your deposit and any equity you accumulate as locked in until you sell your house. Another big risk is related to interest rates. If you have a mortgage and the interest rate goes up, it might be some time before you are able to increase your rental income to cover the mortgage costs.
You also need to remember the extra costs of buying and maintaining a property, such as stamp duty, solicitors’ fees and insurance.
More information can be found in this paper.