5 Reasons Why Investing in Property in Hull Will Create Wealth
This article aims to educate the reader on the five fundamentals of professional property investing focused explicitly on the city of Hull in the East Riding of Yorkshire
The topics covered
- Return on Investment
- Rental Demand
- Stress Testing
- Exit Strategy
When investing in property, you can benefit by borrowing from the bank using the power of leverage. Typically, a buy to let mortgage requires you to put a 25% deposit down, and the bank will provide the remaining 75% of the property’s purchase price. Where else can you get them to do that? Banks will lend you money to buy property. They are less likely to lend you money to grow your business, and they definitely will not lend you money to buy stocks and shares. They understand that property is still a safe, secure asset despite what the media says. To show you the power of leverage, lets me show you an illustration. You have 100,000 to spend on an investment property. The following scenarios show how you can spend that money.
Scenario 1 – Buying 1 property worth 100K with all your cash
Buying one house without a mortgage. Put down 100K and buy the property outright. The following year inflation raises the price of that property by 5%. The property is now worth 105K. You currently have a property worth 105K and equity of 5K in that property.
Scenario 2 – Buying 4 properties, each worth 100K with a mortgage on each
You put a 25K deposit down on each property and a mortgage for the remaining 75K, spending all your 100K across four properties, not just one property this time. The following year inflation raises the prices of that property by 5%, the same as scenario 1. Each property is now worth 105K. However, now you have 4 of them, so benefit from the 5K equity in each one. So you now have 20K equity instead of the 5K in scenario 1. You have still spent the same amount of money but have benefited from leverage of money from the Bank.
Return on Investment
The return on investment is defined below
Return on investment = Gain of Investment – Cost of Investment / Cost of Investment
In basic terms, how hard is your money working for you? You can choose to invest in a new business venture, shares on the stock market, or property. Each wealth creation channel has its return on investment together with its associated risk. As a professional investor, you have to weigh up your appetite for risk and potential return on your investment. Let’s revisit the two leverage scenarios and examine the return on investment.
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