No matter how much advice we are given throughout
our lives, it seems that many of us in the UK continue
to struggle to save our money. Indeed, statistics
put the average Brit`s saving at 1500 little comfort
in a financial emergency. Many of these are home
owners, in particular property investors, with assets
aplenty. So what can be done to avoid falling into
the trap of being asset rich but cash poor?
Before
you begin
Investing in property can appear somewhat safer
than placing your capital in faceless stocks and
shares. You can see your investment and it`s tangible,
touchable and true. But as attractive an investment
as property can be, it is not completely fool proof.
During the housing boom at the turn of the millennium,
savvy investors snapped up houses with the clear
plan of increasing their portfolios whilst increasing
their profit. But as the economy crashed and burned
the cost of maintaining these large portfolios began
to escalate; what was once a symbol of growth and
prosperity became something of a lame duck.
By
no means are these `tales of doom` intended to deter
prospective investors from the housing market. It
is merely a suggestion that it should be entered
into cautiously, sensibly and with the foreknowledge
that the market has a habit of changing in a moment.
When
you are choosing a property be clear about calculating
all expenses, including projected rental or resale
value. Commonly, tenants are charged around 125%
of the mortgage payments as this ensures a little
profit for the investor each month. If the amount
calculated seems apt for the area you are considering
it suggests the investment is sound with a good
chance of making money. It is vital that you have
those oh-so-elusive savings in place in order to
cover any periods in which the property might be
empty; a fine example of a time when assets will
not be enough to carry you through.
Do
not be tempted to spend thousands turning an investment
property into your dream home. Remember it has to
be for a tenant, not for you. Pouring even more
money into already expensive assets has the potential
to leave you dangerously short. Once a property
has begun to make substantial money, you can think
about possibly investing again. Rushing head first
into building a portfolio might lead to lots of
assets, but not much cash.
If
you do encounter problems
One way to increase cash flow is to consider if
you truly need all of the assets you own. Are there
any you are prepared to part with? A holiday home?
Expensive jewellery? A second car? Relinquishing
assets such as these can release cash to support
you through the hard times of property investment.
Good old-fashioned savings are uncomplicated and
ideal for emergencies.
Borrowing
money is of course an option, but you must be careful
about whether the loan is secured or unsecured.
With loans you are really taking on more debt so
it should not be entered into lightly. With property,
equity loans are possibilities yet this negates
the inheritance aspect of these types of assets.
There
is the option of insolvency through bankruptcy.
The stigma once attached to bankruptcy is no longer
there as it is now seen as a viable option for those
in financial dire straits. There are overheads of
course, as it is a court procedure and there is
the possibility of losing assets and cash through
the ruling. Following www.bankruptcyadvice.co.uk
will explain whether you will be entitled to keep
any belongings or an allowance of sorts. It will
not be for all, but if the idea of a fresh start
appeals it might be the best option. The best thing
to do in all cases is prioritise your money do not
continue to accrue assets whilst you owe money elsewhere
or you could end up in more trouble than your investment
is worth.
