Renting out can boost your finance
SO WOOPPEE! We haven't all plummeted over the fiscal cliff then. I don't know about you, but I'm pretty sick of feeling like a lemming, poked by world events out of my control to jump in to the icy unknowns of financial oblivion. And so the stock markets surge.
Well that's all right then. For now. But what will rattle the world economy next?
And all this global economic claptrap has direct effects on the world I swan around in ... property.
Oh yes, a two-up two-down in Bolton is adversely affected by world events just like a nation's credit rating.
And reading the New Year's property predictions it's impossible not to be struck by how downbeat much of the commentary is.
For starters, Nationwide is predicting the UK property market will remain subdued or even dip slightly in 2013.
The building society says average prices dropped 1 per cent in 2012, reversing a 1 per cent rise in the previous year.
Over at the Land Registry it was slightly better news, especially if you're living in London.
The registry's data revealed prices in London rising by 7 per cent in the year to the end of October, easily outstripping increases elsewhere.
According to them the average national increase was 1.1 per cent.
None of this will surprise estate agents who know that — outside of local bubbles around schools, universities, and particularly sought-after postcodes — the market has generally flatlined or fallen over the past couple of years.
But something is being missed. We need to re-think how we view property.
So here's a thought for 2013 — why don't we stop focusing on capital growth and see property instead as a potential income generator?
As a nation there is no denying we've been fixated by the amount property values rise or fall: 10 per cent one year, 15 per cent the next — then a 30 per cent drop when the bottom falls out of the market. It's staple dinner party conversation.
But if you see ''Property'' as something that can generate a pretty impressive income, irrespective of its capital growth (or lack of it, then maybe the future is very rosy.
And the very good news is that if prices fall, the situation gets even better — because rents are going up.
So it costs less to buy the thing that you can rent out for more. In the most basic economic way this is pretty tickety boo! Your yield — the amount you get back as a percentage of what you invested — goes up! Happy days!
The practicalities of this are; If you're leaving your money in a bank or building society, you'd be lucky to get a 2 or 3 per cent return on it.
Use that money to buy property, and with current rental yields you could easily enjoy a 4 or 5 per cent return. In the right areas, something closer to 8 to 10 per cent.
I met someone recently who was getting a 16 per cent return off their rental property.
If that return continues, in 6 years they will get back their initial investment and be left with a mortgage-free house.
The truth is that no matter how gloomy the market and the January predictions of experts, property has never been better if you look at it as an income generator.
There are currently some real bargains out there. If you have money to spare, maybe you should think about investing. Of course it all depends on having the cash or being able to raise the finance — not easy as we all know.
You need to pick your property and location carefully.
In many areas the rental market is simply being overwhelmed by demand, driven by, amongst other things, first-time buyers struggling to get on to the property ladder — so having to rent for longer.
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