Property Investment: How to be a winner

One of the questions I am asked most often by eager property buyers is 'how do I make this an investment, rather than just a luxury? Obviously there is not enough space on this page to explore this question in too much detail and each individual case requires very specific advice, but let's have a look at some of the basics that are worth considering.

There are three types of residential purchases to consider:  Purchase of an existing property, purchase of a property in construction and lastly the purchase of a property for refurbishment. Whichever one of these best applies to your investment strategy, there are underlying trends in property investment that you should know.

Property has always proven to be a winner in the long term.  You can select any ten year cycle, and you will find that an investment in property has outperformed secure investments such as bonds and gilts or performance linked methods such as the stock markets.  Property investment is not just about capital growth.  Rental income, or rental saving, has to be factored into the equation, which often boosts the return on property investment into the 'exceptionally high' category.  Combine this with the fact that property is probably the only investment that you can use other people's money for your speculation, in the form of a bank's mortgage, and that a mortgage is the cheapest form of borrowing money and you start to wonder why anyone would consider anything else! 

Of course there are risks.  Property will not provide an overnight return, I mentioned ten year periods earlier, and that's the point where you can guarantee that you have made a healthy profit.  Sure, millions of people invest and happily cash in years before that, but think ten years to start with, and see how the growth goes.  Don't make plans to spend it before that and you can't go wrong. Of course a recent report by Metrovacesa, a Spanish property company, tells us that prices have risen 121% in the last seven years (compared to a mere 116% in the UK) makes my advice sound a little overly cautious, but I believe in all investment it is wise to err towards caution.

Another risk is that you have to ensure that you can repay the mortgage.  Taking out appropriate insurances can protect you to a certain extent, but don't stretch yourself.  Spanish mortgages are the lowest in Europe, but interest rates can change.  If you're planning to rent it out, don't rely on renting all year.  This may be Tenerife, one of the few places in the world with a true twelve month tourist season, but that still doesn't mean you will get a full twelve months of rental out of your investment.

Another consideration is that property is not a very liquid asset.  In other words it takes time to convert bricks and mortar (or perhaps concrete and steel) into cold hard cash.  Recent surveys, for instance, put the average time to sell a property in Spain at between three and five months.  Obviously, if you need to get your hands on the loot quickly, then the only way to do this with property would involve restructuring your borrowing. 

Lastly, as far as risk is concerned, you have to ensure that you are paying a fair price for what you are getting.  Obviously, your agent (who you have spent time carefully choosing), should be the one to advise you on this, and indeed in all aspects of the investment.  It is possible that they may have an investment specialist on hand to advise you.  Failing finding one, you will have to wait for the articles that follow over the next few months where I will deal with each the three types of investment I referred to earlier, in as much detail as space will allow. 

For eighteen years Tenerife Property Shop S.L. have helped property buyers and sellers in the south of Tenerife, winning numerous awards for their service and quality.  You can contact them on 922 714 700 or go to their website at www.tenerifepropertyshop.com