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Many people have been told by the education system and mainstream media that they need to save money in the bank. In the past, when interest rates were higher, that might have been a decent option, but times have changed. Now, if you keep your savings in a bank, you will see the value of hard-earned cash slowly drained away.
Central banks continue to release more currency into circulation, causing fiat money to be devalued. Meanwhile, banks continue to pay interest rates on savings that are far lower than even the official rate of inflation. So, if you want to keep your existing spending power (never mind increase it), you need to find a vehicle for deploying capital. As a multi-million-pound real estate investor, my answer is the UK property market.
1. Limited supply
In the past, currency was backed by gold, which limited the amount of it that governments and central banks could create. These days, nothing backs currency, meaning central banks can continue to create more and more of it. Because creating money does not increase the amount of products and services on the market (the real wealth of a nation), producing new currency simply devalues the existing amount out there. This is why your money can purchase less over time.
So, when you want to save your money, you need to find somewhere to store it that has a limited supply and a rising demand (if something has a limited supply alone, but not demand, then it will not retain value), and be additionally assured that this demand has been proven over time.
The United Kingdom is a small nation with limited space. It’s also an extremely popular destination for people from all over the world. Continual immigration to the UK means that housing is always in high demand and there are no signs of that abating soon — a limited supply and increasing demand.
Related: Should You Buy Investment Property Now, or Wait for a Crash?
When you have money in the bank, you can only benefit from the exact amount deposited, but when you buy property, you can put a small amount down and have the rest covered by a mortgage. Unlike other forms of leverage however, it is much less risky. If you use leverage to buy Bitcoin, cryptocurrency, FOREX or stocks and shares, you are at high risk of being liquidated and losing all your money on the trade. That’s why you will see disclaimers like, “68% of retail investor accounts lose money…” on popular leverage trading platforms.
UK real estate is generally stable enough to allow you to confidently use a mortgage to buy. Even if its value drops, if you’ve chosen a property with good cashflow, you can just wait it out while you are paid to hold the asset.
You can make your money go even further by using strategies like “buy, refurbish, refinance, rent” (BRRR), in which you buy a run-down property, fix it up, then refinance at the new value. If this is done right, the new mortgage will cover the cost of the refurbishment as well as the purchase price of the property, which leaves you with your initial capital to do it all again! Now that is incredible leverage, the kind that allows you to take a small pot of money and turn it into a multi-million-pound portfolio over time. You can’t do any of that if you’ve parked your money in a savings account.
Related: How to Make Money Flipping Houses
3. Cash flow
If you keep your money in the bank, you will likely be paid under 1% interest — a lot less than inflation, meaning you are effectively losing money. If you choose a high cash flow property in the UK on the other hand, you will be paid to hold an asset that is likely to increase in value over time. It’s very important, however, to choose a property with cash flow in mind, because even if there is a downturn in the market, you can happily sit and wait for a recovery. To find a property with excellent cash flow, you may need to look beyond London: Don’t be afraid to search for properties in the Midlands, the North of England and the valleys of Wales. (If you are an overseas investor, it may make sense to work with a deal sourcer with expertise in these areas.)
Related: 3 Reasons to Love the U.K. Residential Property Market