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This is the second in the series of building a property business and in this video, we're going to talk about why property is a great business. In the last video, we established that in order to create the lifestyle of choice, the best route to be able to do that would be to create your own business. And I believe that property provides you with a great opportunity to create a very voluble asset, but also to produce a substantial income. Property is a physical asset. It's something that we will always need such as food and water. There will always be a need for property, whether that's residential or commercial property, walk down any street and you are surrounded by property as it is a universal asset, but it's also a physical asset. And so therefore it generally retains its values, even in the worst of economic circumstances.

When people look at investing, they often either look at the property market or they look at the stock market. And it's kind of strange. There always seems to be a friction that those people who are heavily invested in the stock market believe that the property market is not something that you should be investing in. And I kind of came across this, back in about 2009 and I was delivering a speech to a group. And there was a gentleman in that group who, who I knew, and he was heavily invested in the stock market and he kind of disagreed. The main thrust of my speech was about investing in the property market. And he, cited various reasons why I shouldn't invest in the property market but what's kind of interesting about that story was his main complaint was that property is not liquid enough.

In other words, you can't get out of it quickly enough, but a property business is built for the long term. Several years later around 2017, we ran into each other again and he was getting very nervous because we just had the Brexit referendum. And if you remember all the turmoil that was created around that, then in decision through parliament and the potential blocking of our exit over the EU and so he was nervous how that would affect the stock market And of course I asked him what he was doing currently and he responded with that he'd pulled all his money out of the stock market because he was nervous and kept it in cash because at least if he had it in cash, he couldn't lose money, which of course inflation would eat away at it. So, his argument was to pull it out of that market, yet property in the meantime had started to move ahead, even in the worst of times, property has not devalued significantly over the long term. It goes up over the short term, it may drop. And even after the 2008 financial crisis, it dropped on average about 17% across the country. It's more than gained that now and risen way above that level.

Property is a physical asset, and we will always have volume. I had a close friend of mine, we knew each other all the way back to primary school, and he, had a career in the bank. And he was invested in shares in the bank. And as a result of the 2008 financial crisis, he saw his shareholding in the bank, which is one of the worst hit sectors drop by 90% and unfortunately to this date, it has still not recovered. And yet over the same period, I, the property that I had invested in for 40 years went from a volume of seven and a half thousand to over 400,000. So, you can see why I'm very much sold on the idea that property is a great place to place your money. But I believe that in terms of residential, letting that is becoming more increasingly difficult.

Therefore, if you're investing in property, you perhaps want to move to the commercial sector, which you'll see a little bit about in a later video. See one of the issues that I would have with the stock market is that you can put your money in various shares, and let's assume you take a drug company, and you can see these going dramatically up. Now, for instance, my mother invested in Glasgow claim and saw her share volume, go up dramatically. But what would happen if there were hot, then you drag in that maybe makes the share price sore, but then all it takes is some bad publicity, some scientists to come out and say that there's some problems with it. And you start to see the share price dive, and yet with a physical asset, such as property, you have much, much more control.

 It seems obvious, but we all need somewhere to live. And with the changing demographics we'd need more and more homes. And yet we are continually told that we have a shortfall of homes. Governments sets targets in the early 2000. We needed 200,000 homes each year to be built and yet unfortunately missed that target. The fact that they've set targets doesn't produce the homes and in fact, the reason that we're now 300 is because we didn't produce those 200,000 each year and the 300,000 are not going to be produced either. There will always be an opportunity, particularly for property developers to build more homes.

We need places to work, and we want places where we can socialize. And there's a lot of conjecture now in the media saying that people are used to working from home because of the current pandemic and that they want to continue. That I believe that we will see much greater switch back to people working in places that are outside the home than most of the media are talking about. But there's also places where you cannot work from home factories shops, try and have a cashier working from home in your local supermarket. It just doesn't work. So will always be a need for commercial property as well. Whether that's for our entertainment or it's to service, our daily needs.

Property can be leveraged see if you want to invest in the stock market. Say you’ve got 10,000 pounds to invest in the top stock market. What can you invest in the stock market, 10,000 pounds? If you want to invest in the property market, then you've got 10,000 pounds. You can borrow money against that and be able to buy a larger asset. So, you might be able to outlet borrow 75%. So, with 10,000 pounds, you can buy an asset of 40,000 pounds. Now that becomes significant leverage can then increase in volume. So, if the stock market goes up 10%, you're 10% is a thousand pounds that you've increased it. If your property that you've leveraged goes up 10%, then know you've got 4,000 pounds. So being able to leverage it has made your asset more vulnerable and therefore your growth capital growth is even greater.

Property rises with inflation; I absolutely love this one because it's a great protector against inflation. Now, currently we're talking about high inflation rates. We recorded somewhere by the 5% inflation rate last month in this country. But in fact, when you look at what that entails in terms of the basket of, of things that they monitor our inflation rate is probably near 10%. When you take a real-world experience, property will protect you if you're invested in it against inflation, and because the volume will go up, it's an S and a particularly, if it's a leveraged value, then you are going to significantly improve your wealth by being invested in property. So, if I go back to my experience in 1973, when I bought the, my first property for seven and a half thousand by that property was worth £21,000. And it was inflation that took it on that rapid rise property can produce income and capital appreciation.

Now you shouldn't be invested in the property market solely relying on capital appreciation. Capital appreciation is nice when it happens and it protects the value you got invested in there, but you should be, if you are an investor in property, you should always be looking for a return on that investment. Now, a lot of people in the past have been involved in residential investment in property, but that's becoming increasingly difficult with higher charges to get in, terms of higher stem duties. The fact, if it's in your own personal name, that you can't recover the mortgage interest and all of that, you can offset that against tax and the increasing amount of legislation that's being brought in to protect the consumer. The consumer will always be protected. And so therefore you cannot see that getting any better rent controls is something certainly in the, on the horizon. And there is a move to introduce them in Scotland currently. So, what happens here will probably happen in the rest of the UK through time.

I'm a property developer my approach to the market is often different from many property investors. Although I'm seeing a lot more property investors now becoming interested in property development. And it's something that I have been talking about for years. And yet people really couldn't see the benefits of being involved in property development, but because the residential letting market has become increasingly difficult than people are looking at that, they're also looking at commercial at letting opportunities, which is certainly a far better market than the, the residential market. And we will talk about that in a future video, as a property developer, I am particularly interested in land development and property development is where the real money is in the property industry. And if you want to build real wealth, then that's where you need to be focusing your efforts. But we'll talk more about that in future videos, understanding the mechanics of the land business and the fluctuations when to buy land and when not to buy land will really help you.

 As I've said before, property is a great store of volume. If you're already invested in residential or commercial property, then you have a significant asset that is going to do very well over the next few years, before the next property crash, there will be a crash. And we will cover that in a further video so that you know, when to expect that, but as an existing property investor of some kind, it gives you the opportunity now to move into property development. Why would you want to do that Because property development will provide you with chunks of money, to an order to facilitate further purchases, all your investment properties and the investment properties need to be protected as we come to the next property crash, because you need to be able to reduce the amount of exposure that you have through leverage, but we'll cover that in future videos in this series.

Jim J Davidson
Jim J Davidson

Property Developer, Trainer & Coach, Jim's first property investment was an HMO in the student district of Edinburgh in property in 1973. His company Fyneside Developments Ltd. began developing new build residential properties in 2005.

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