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shows more fortunes made from property than any other source



The five main types of asset that investors profit from


First of all, let’s look at the five main types of asset the wealthy consider for returns:


  • Cash (e.g. a savings account with a bank or building society);

  • Bonds (e.g. a loan to the government or a large company);

  • Property (e.g. residential or commercial property);

  • Equities (e.g. shares in companies such as BP or Vodafone); and

  • Commodities (e.g. copper, oil or coffee)


As a general rule of thumb it is often said ‘the riskier the investment, the greater potential for return’. We like to talk about the “long term” when it comes to property investment, which generally means five years or more. Comparing and analysing these investments should reveal what best suits your needs as an investor.

Cash is generally considered by many to be the safest asset, despite it being out of their control. Cash is also likely to give you the lowest return or even a loss over a period of several years or more due to the diminishing effect of inflation. Bonds are slightly more risky than cash and normally generate roughly the same level of long-term returns as inflation. Bonds still have a control issue as again they rely on other people playing with your money while charging for the privilege. Property tends to do exceptionally well over long periods. The returns from property are quite stable. Although property placed in the middle of the list, due to its minimal risk profile, investors often employ strategies that enhance returns. Some of the stratgies used increase returns to become the highest of all the investment classes over long periods. Property also has the huge benefit of the investor being in full control of the asset. The returns from equities and commodities vary the most from year to year and you have no control of the investment, enhancing the risks excessively, but the returns can be handsome over long periods.

As an example of the difference in volatility and risk, here in the UK, the real annual return of cash over the last 100 years (i.e. the annual return after adjusting for inflation) has been reported primarily between minus 5% and plus 8%. For equities, the majority of annual returns for the last 100 years fall between minus 15% and plus 25% and the chances of losing money in any individual year has been approximately one in four.

Property has two parts to the returns, capital growth and rental income. Since records began with the Nationwide the annual growth has ranged between -15% and plus 25%. However unlike stocks and shares the value of property is never £0 and rental income would still provide returns on capital invested while the property values rise back and above the previous levels, exactly as they have from 2008/2009 to now.


Long-term returns


To illustrate what effect this can have, let’s look at some numbers. Here is a table showing the average annual return for cash, equities and gilts over the last fifty years (note that gilts are the main type of bond in the UK, being a loan to government). The figures are taken from the Equity Gilt Study produced by Barclays Capital.


Average Annual Return









Expressed in percentage terms these figures don’t look that interesting. So let’s look at them another way. Say you invested £1,000 in each of these three assets fifty years ago. How much money would you have now?


£1,000 invested

Value after 50 years








£57,648 (+50 years rent)

No one knows what will happen in the next fifty years of course. However it is worth noting that these figures span numerous wars, recessions, shocks and other crises. We think they provide a reasonable guide as to what sort of returns to expect in the future as well. 

As we’ve seen in the last decade though, the returns from shares can be weak for a considerable period of time. A key point to recognize here is that if you want to earn a high rate of return, i.e. higher than you’d typically get from a savings account, you need to accept some risk. That means getting comfortable with the fact that your investments will go down in value some of the time. Those that invest in property really do not mind this as unlike the stock that can be reduced to being worth nothing, property provides an ongoing rental return and grows in time to values in excess of before.


When To Invest - NOW


That’s all very well, you might say, but I don’t have fifty years to invest. Well, you might if you’ve just started work and you’re looking to invest for your retirement. Investing in property also works well over shorter periods too.

Even over a period as short as a year or two, the probability of property out performing cash is high when structured well. However, most people, ourselves included, advise that you should always consider investment in any property as a medium to long term venture. The rationale being the probability of losing money over a short investment period, while fairly small if you or those that help you know what you are doing, must be considered. We are only interested in helping investors succeed.

So when should you invest? The earlier the better.

It’s advisable to keep a portion of your money in cash as a contingency fund, just in case of emergencies. Three to six months’ salary is a good starting guide as this is often the period you’ll need cover before any insurance policies you may have start to pay out.

Once you have a contingency fund in place, the longer you give your investment to perform, the greater your returns are likely to be. So invest as soon as you can. There is always a risk that you will invest just before a dip in the market. There is very little you can do about this. No one knows where property prices will go in the next minute, day or month. All we do know is that the long-term direction of the property market is up. Please do consider it has not been a straight line of growth and is not likely to ever be. If a market fluctuation is of concern, we can show you how to protect against this at the point of purchase. Smart investors discuss their concerns as well as their aspirations and are often surprised how easy it is to adjust a strategy to alleviate any perceived potential problem.

In practice, you’re likely to invest all your money at one particular point in time. So while you could see immediate property market fluctuations some of the time, most of the time this won’t be a concern as you are not looking to sell and are enjoying rental profit regardless.


How to invest in property


The main reason Earnest Knight spend a lot of time consulting our clients is their needs differ as widely as our opportunities. We need to speak to you to learn what you need from your investment to understand how you want to invest or to propose strategies you may wish to employ. Call 0208 6109 472 and speak to a consultant today.

To give a popular example for someone looking to grow a portfolio here is a basic structure.

Property value £200,000
Earnest Knight Discount (20%) £40,000
Purchase price £160,000
Mortgage 75% LTV £120,000
Deposit required £40,000
Acquisition costs est. £9,000

1 year later remortgage

(after 1 year growth @ 5% = 157,500)

Cash out (to enjoy or invest in more) £37,500
Equity left in the property £52,500
Total cash and equity after 1 year £89,700

If you bought another after remortgaging based on the same figures and waited a further year and remortgage again.

Two properties with £115,500 in equity and again cash out of £37,500.

This simple buy and re financing strategy, making a net profit in 2 years of £92,500, is not complicated.

If that is not enough profit you you then do also consider that there is likely a rental cash flow of around £10,000 p.a. to add to the profits listed above.

Do you want to make £100,000+?



Talk to us


This is just one simple investment structure from many strategies our clients employ to grow their portfolios and enhance their profits.

Find out what suits your needs, goals and circumstances today call 0208 610 9472.

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