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an investment property should ‘wash its face’

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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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12 comments for “an investment property should ‘wash its face’”

  1. I’ve thought about buying to let… but one feels that one has missed the boat. Its only recently I actually might have had enough. Now the rents would not be enough for the house payments.

    Posted by Llama for brains | November 1, 2007, 2:17 pm
  2. I’m pretty certain that I’ve missed the boat on this one. I’ve got a couple of friends who are successful at it, but I think I’ll stick to my index funds as my primary investment.

    Posted by plonkee | November 1, 2007, 3:52 pm
  3. Yes, that is my thinking. Just keep plodding on with the ISA contributions to an (FTSE allshare) index. Personally I go with M&G due to the 0.3% management charge… But please correct me if that is a bad choice!

    Posted by Llama for brains | November 2, 2007, 1:51 pm
  4. Nice post. I believe England and America are headed for lower housing prices. For many folks, they will lose their equity. It won’t be pretty.

    Posted by Ryan Healy | November 2, 2007, 4:23 pm
  5. nice post buddy.

    Posted by Property Investment UK | November 14, 2007, 7:27 am
  6. This is really wonderful post. An investment property definitely should wash its face. Great word put by this post. I am decided to buy rental properties in past. I think my decision is not correct because mortgage is too expensive that we have to pay extra money. This leads to loss in business.
    Thank you for your wonderful post…

    Posted by investment property | March 27, 2008, 6:42 am
  7. Obtaining capital in this market is easier said than done. Banks are going belly up, lenders are increasingly making it more difficult to obtain capital. If you have an existing business, the easiest way to increase your operating capital isn’t to go get more loans. Business finance should be your last option because Commercial banks are lending, but are very picky.

    Dan from http:/jumplanet.com the Get a Business Loan site

    Posted by David | January 17, 2009, 3:51 am
  8. It is very costlier to buy a house in UK so; most of the people prefer to stay on rent.
    Since 1970, the property rates are growing high and high. The people, who have their own big houses, put some portions of houses on rent but they didn’t earn much by rental properties. For good investments in properties, share-holders some times get the opportunities; after earning profits. The people who want to buy affordable properties such as homes/offices/industrial plots or corporate houses in Delhi/NCR can contact at: 0120-4338222 or 800-232-2343(US). For more details visit this useful e-source.


    Posted by Realestate Consultant | August 18, 2010, 11:52 am

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