plonkee money an english-er's thoughts on personal finance

October 31, 2007

an investment property should ‘wash its face’

Filed under: house — plonkee @ 12:00 pm

There are two recurring contradictory pieces of news in the UK about the housing market. The first is that prices are about to crash, and the second is that there isn’t enough supply to meet projected demand. It wouldn’t surprise me if both were true, but over different timescales.

One thing that is agreed upon about the current housing market is the importance of buy to let investors, people who have bought properties as investments.  Although I think that your own house is a poor investment, renting out properties can be.

However, renting out a property you own becomes very risky if the property doesn’t ‘wash its face’, which is to say that the rental income should cover the costs. And for a lot of people who’ve bought recently, it doesn’t. People are paying out every month for the privilege of having someone else live in a house they own.

It’s true that in the UK, the increase in the cost of houses has been running at 2% above inflation since the 1970s. While that’s nothing to be sneezed at, if it would be cheaper to rent then buy, and there’s a glut of rental properties, you can be sure there will be a  correction and it is unlikely to be in your favour.

In short, if you are losing money month on month by renting a property you are likely to be better off putting your excess cash somewhere else, like say, in stocks and shares.

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