Investing for Income
Globally we are living in times of historically low interest rates. That can be great news for borrowers but it can be catastrophic news for investors that had become accustomed to drawing income from cash deposits at the bank. In most developed countries, the interest paid on cash deposits will not even keep up with inflation. Therefore investors earning interest on cash deposits will be going backwards in real terms. And this is even before withdrawals are made for income. Very few retired individuals would now find cash deposits a viable option for providing income in retirement over perhaps a period of 40 years!
Similarly, the rate of income that can be drawn from bonds and/or annuities has slumped to levels that are no longer viable for the majority of investors. Taking income from a share portfolio can be worth considering especially if the income is derived primarily from dividends because selling shares to provide income can be a high risk strategy in a prolonged bear market. Similarly, commodities are usually considered too volatile to represent a sensible asset class for providing income.
Against this challenging backdrop for almost every asset class, it still remains possible to generate attractive, steady income from good quality investment property.
The key to successful property investment is choosing a property that is right for you. That means in the right location and at the right price.
We at Wealth Management Group (Global) work with some of the best property developers and investment companies to bring our clients a range of attractive opportunities to generate income through property ownership. Of course particular properties come on to the market and get bought and sold daily so rather than provide a list of currently available opportunities, we will always strive to offer good quality properties and projects such as the following:
- Individual UK property ownership designed to generate attractive income with of course the prospect of capital growth too. We can offer both residential and commercial property direct from the developer and these often come with rental guarantees in place. One particularly interesting niche within this sector is the UK Student Accommodation sector. Where income is the priority we encourage investors to look outside of London where the most extraordinary sustained rally in property prices has pushed valuations in the capital up to the point that London rental yields are relatively unattractive. We would always suggest looking at comparable opportunities in good quality property in UK provincial cities where yields are typically more attractive. Please contact us to explore current opportunities.
- USA Commercial Property.
For US Dollar investors looking for a steady, predictable income stream we always have a range of investment opportunities in good quality commercial property. The key considerations here are to identify good quality buildings in good locations with top-quality tenants on long-term leases.
We work with specialist property investment companies that package such investments for us in locations such as Chicago and Florida where attractive yields are available in good quality properties.
Access to these projects can be tailored to meet the needs of larger investors where we will arrange ownership of the complete development, or smaller investors that can participate through a private syndicate structured specifically for the purpose of owning a particular building.
- UK property ownership through a private syndicate.
Very often an investor can identify an investment opportunity that offers a very attractive income level but sadly has to pass on the opportunity simply because the capital required is too large. For example, some of the best income available these days comes from the HMO sector (Houses of Multiple Occupancy) but the price of some of these grand properties with a dozen or more rentable rooms can be well beyond the reach of an individual investor. That is why we work with property companies that have decades of experience in offering this type of property by way of participation in a private syndicate. The holding period for such an arrangement would typically be 5 years thereby ensuring that investors can exit at a specified time.
- Special Investment Vehicles for the ownership of some highly specific property investment assets are also available. These can take the form of specialist commercial property offering land title to individual investors, or alternatively we can offer investment into a range of both open-ended and closed-ended property funds.
Some words of warning for property investors.
There is a belief amongst some investors that an investment in property is somehow immune from the range of risks normally associated with other investment classes. After all, the old saying goes……….. “As Safe As Houses”
Unfortunately property investment carries no such guarantee of stellar profits every time. Property markets are cyclical and they vary immensely from one location to the next. For example rental yields in a UK provincial city may be vastly different to yields in London. Likewise the yields even within London will vary significantly, with the well-known trophy locations such as Kensingron and Belgravia continuing to be in high demand despite offering rental yields that can be bettered elsewhere.
Property prices can remain flat or even fall over sustained periods. This can create an acute problem where an investor has utilised mortgage financing to acquire a property. Mortgage financing is of course a form of leveraging, or “gearing” one’s investment capital. It gives the investor a magnified exposure to the market when compared to the capital invested. This is great news in a rising market but it can be disastrous in a falling market. There have been occasions in many developed markets where significant falls (often following a period of sustained growth) has left investors in a difficult position, as anybody old enough to remember the phenomenon of “negative equity” in the late 80’s will attest.
Consider too the effect of rising interest rates on any property investment you are considering. As mentioned earlier we are living in a period of historically low interest rates and we have been for some years now. However, nothing stays the same forever and it is entirely possible that rising interest rates may be the norm over the coming years. Always consider what effect a significant rise in interest rates would have on the value of your property investment and the cost of any borrowing associated with it.
As always, we strongly recommend investors to discuss their requirements and their plans with suitably qualified professionals. Please contact us to discuss your property investment requirement. We will be delighted to assist.