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Mar 24, 2022

3 Ways an Offshore Property Can Make You Money

When it comes to earning from your property investment, time is money. Whether you’re focusing on capital appreciation, relying on the role of inflation or looking to enjoy profits from rental income, you need to be patient to benefit.  

“It’s a fact: time is your most important asset,” says Scott Irving, General Manager of Carrick Property. “You need a long-term strategy for your property investments, so that as you build rental yields, the value of your investment will grow alongside the market.” 

By giving your real estate investment the time it needs, there are three basic ways to make money from it that will never change.  

1. Capital Appreciation 

While property prices may fluctuate in the short-term, the value of real estate generally doubles every 15 years. This is due to inflation (increased costs of building, labour and materials), as well as scarcity of land and therefore increased demand. Even if the piece of land that you have owned for 10 years is still not developed, it will be worth more today than when you bought it. Values will also increase as a result of location – as an area grows and undergoes regeneration, values will climb – while renovations or improvements add to the overall value of the actual building. 

Keep in mind that as your property value benefits from inflation, you are also suffering the effects of inflation in other areas, such as cost of goods, which affects your disposable income and purchasing power. 

 

2. Rental Income 

A long-term buy to let residential property in the right location is a no-brainer as there is always a demand for housing. Ideally you want to put a small deposit down and take out a mortgage for the rest. The advantage here is that as the rental income from the property pays down the principal on your loan, you will naturally accumulate equity over time. Any rental profit may be minor initially but it will steadily increase as your loan to value decreases. After five years you will have the foundation to scale your property portfolio. 

 

3. Leveraging

The power of leverage is massively underestimated, says Irving. “Being able to leverage your investment (borrowing money instead of using all of your own capital) is one of the reasons that investing in property is so appealing – you can literally grow your portfolio by using other people’s money.” If you start off with a single property, as most clients typically do, you can allocate a portion of your own funds and take out a mortgage for the balance. After five years or so, depending on the growth in value, you could refinance your first property – essentially using the profit on property one as the deposit on property two and taking an additional mortgage on the second property.

While the annual income on a cash purchase may look good initially because there are no mortgage costs, over 10 years or so you will see a significant benefit with an interest only mortgage as you’re putting in less money (due to the loan), but still getting rental income.

As an example, George Radford, Managing Director: UK & Africa RPA Group offers two profit scenarios for a first-time buyer, based on real costs for Hayes Village, a new development in West London.

 

Apartment Value: £290 000

Cash purchase

60% mortgage

Exchange: £31 000

Completion: £285 000

Total: £316 000

Exchange: £31 000

Completion: £115 000

Total: £146 000

Annual net rent: £10 400

Annual net rent: £3 400

Expected return on equity

Expected return on equity

5 years: 28%

5 years: 34%

10 years: 63%

10 years: 87%

 

Be prepared to cover the cost of the mortgage and plan for the unexpected such as lack of rental income or covering any shortfalls in the mortgage. 

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