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articles > Money in the Bank?
Article > Money in the Bank?



Article kindly supplied by Mike Clarke, Property Investor


Anyone over the age of 30 will tell you that in order to have money for retirement, be that early or at the current age limit of 70 (yes that’s right 70!), we have to start putting money away in savings accounts or invest it so that we will have something to live on when we decide to give up working and retire. There is currently a problem with that - interest rates!

At the moment and for the foreseeable future, any money sitting in a savings account with a bank or building society will not earn much interestas rates are low. The best rate I came across whilst researching this article, was 3.8% (from the company that uses British racing driver, Lewis Hamilton in their TV adverts), and even at this incredibly (!?) high rate, the product had many clauses and minimum paying in levels that must be adhered to in order to achieve the full rate.

Property typically doubles in value every 10-12 years according to the trends, even when there is a massive crash as the market overstretches and suddenly appears to implode. This is usually due to rapid increases in the valuations of property such as housing, where unsustainable levels are reached relative to incomes and other economic elements, followed by a reduction in price levels.

Such major corrections in the market are typically every 20 years or so and end up bringing property values back to realistic levels. However, this time, the property market did not implode due to an expected major correction.

In 2007, US banks realised that they had a liquidity problem as they had been handing out lines of credit to lots of people who were not in a position to be able to pay it back. These debts were underwritten or sold on by different institutions in an attempt to minimise the impact on the banks trillion dollar shortfall in cash reserves.

As we are all aware, this did not work out exactly as planned, it just spread the debt around. This affected many financial institutions in various Countries and in the end, the United States Government were forced to step in to bail out their own banking system. It was still too little too late for the global economy and we have all suffered the consequences since.


Many businesses, savers and private pension funds, who had been counting on a healthy return on workers hard earned cash, still face a massive multi billion pound shortfall in their funds initial financial predictions, having lurched from one economic disaster to another since 2007 including the collapse of the Icelandic banks and the current Gulf of Mexico BP oil disaster.


So, why risk leaving money in a bank? There are better alternatives, even in the current economic climate.

Property has always produced good returns for investors and will continue to do so.

In 2009 there were encouraging signs of stabilization in the UK property market, as prices began to rise slowly month on month. However, the majority of Investors remained on the sidelines waiting for firm evidence that the market had turned and that the recovery was real and sustainable, complaining about poor cashflow or the lack of suitable Loan To Value mortgage products.

Successful investors are those who are able to think outside the box and who have the mindset to take action. They have already discovered many additional ways to profit from property. They are able to devise, adapt or accept different methods and strategies to purchase or control an asset whilst generating an income from it. They have broken the hard pressed social conditioning behind much of the way that property was traditionally purchased and have generated wealth!

In fact property values have increased 10.5% over the last 12 months.

That means if you were savvy enough to have bought property in 2008, Congratulations! You have already made money on it. So, if you are an Investor with a property portfolio worth £1,000,000, congratulations your properties are now worth £1,105,000. Thats a healthy increase of £105,000. Nice!

Choosing to invest in property is not for the faint hearted,
but it is for the enlightened!

 

 

 

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