Why a property, some people ask when looking for an investment. Well, as far as I’m concerned, real estate investing is, and always has been, the most powerful type of investment for building wealth. It has been said that more than 90% of the world’s millionaires got there by owning property. The reason that ownership is such a powerful way to build wealth is due to a key concept: leverage.

Once I realized this, I didn’t look back. Now if you are a seasoned investor, this may be a no-brainer, but for the benefit of those who haven’t seen the light of day, let me explain … Leverage is your ability to magnify your returns using other people’s money (in in this case, it is usually money from the bank).

To give a clear example, let’s say you have £ 20,000 to invest. This can be a lump sum or by releasing capital at your primary residence.

So what is the best way to invest this money?

Option 1 – Paste it into your local bank

Considered by some to be the safest option, “at least you can’t lose it and you get a guaranteed increase in value” is often the argument.

Money in the bank – assumed return: 4%

Now £ 20,000

1 year £ 20,800

5 years £ 24,333

10 years £ 29,605

As you can see, after 10 years, you have made virtually no progress at all, especially when you consider the effects of taxes and inflation.

Option 2 – Shares and participations

Now, for the last 10 years, although it is true that not in the last 4 years, the stock market has been very popular. However, I cannot accept that it is a better bet. When I read that the stock market is a better bet for the next 2 years as it will increase 15% per year, unlike the real estate market which can go up 5% per year, this does not take leverage into account, so it paints a very distorted image !!

And I’ll show you why It’s hard to say what kind of return you could get in the stock market, but let’s say you get 12% annually for the next 10 years, highly unlikely, but let’s get on with this. So if you could beat the odds and get a 12% return every year …

Money on the stock market – assumed return: 12%

Now £ 20,000

1 year £ 22,400

5 years £ 35,247

10 years £ 62,117

That’s a big increase in holding money in the bank, but it’s clearly not guaranteed. But can you do better? I think you know what I’m going to say …

Option 3 Property

One of the best things about the property is that it allows you to leverage the £ 20,000 to buy a £ 100,000 investment property (in other words, borrow the remaining £ 80,000 from the bank). Now let’s say the housing market slows to an average return of just 6% over the next 10 years. This would probably be a fair estimate in the UK, although there are many markets that are growing faster, let’s focus on the UK for this example.

Money owned – assumed return: 6%

Now £ 20,000 (£ 100,000 property value – 80,000 mortgage)

1 year £ 26,000 (£ 106,000 property value – 80,000 mortgage)

5 years £ 53,823 (£ 133,823 property value – 80,000 mortgage)

10 year £ 99,085 (£ 179,085 property value – 80,000 mortgage)

Make sense? Therefore, it increases the total value of the property by 6%, not just the £ 20,000 you initially had. This is the power of leverage. In fact, you’ve multiplied your initial investment by 5 in 10 years! So even if the stock market increases twice a year than the real estate market over the next 10 years, you can make a lot more money on the property.

Now for simplicity, I have not included attorney’s fees, agent’s fees, or stamp duty. It’s true that buying property has more additional costs than buying stocks, but it wouldn’t make a significant difference to your earnings – around 4% in the UK, more abroad.

One thing to note is that in the short term you have increased your potential loss considerably, that is, if the property were to go down 10% in value, you would lose more than your initial investment, because the property’s value would drop to £ 90,000, you still owe to the bank £ 80,000, so you now have £ 10,000. In comparison, if the stock market fell 10%, your investment would be worth £ 18,000, as you will only lose 10% of £ 20,000.

However, over a period of time, using leverage to good effect and using all the other skills you need when buying property, property is by far the best investment for most people.

The figures I have used have been very conservative, many people are earning much more than this on property, while anyone who achieves the same returns on the stock market will generally profit from some type of insider trading or occupy a very high position in the company. , I guess so!