Property

My enthusiasm for real estate is profound. There’s something incredibly reassuring about investing in property that generates monthly rental income.

In times of uncertainty, having a reliable cash flow is invaluable. I view income from real estate as a safety net; should my job be jeopardized or my business face challenges, the consistent monthly rent from tenants can provide financial stability.

What I particularly appreciate about real estate is that the cash flow is typically linked to inflation. Generally, rental rates tend to rise alongside the cost of living, meaning that as inflation increases, so do rental prices. Thus, owning property aligns your income with inflation, safeguarding your financial resources.

While cash flow is essential, property offers long-term benefits as well. My experience in real estate has shown that capital appreciation can yield significant profits. The properties I own have nearly doubled in value since their purchase. This means that not only is the cash flow protected against inflation, but the property's value also tends to grow in tandem with inflation.

In the UK, real house prices have historically increased at a rate of about 2.4% annually since 1958, outpacing the government's inflation target.

Supercharging Your Property Returns with Leverage

Investing in property can be a powerful wealth-building strategy, especially when leveraging your investments.

Most individuals acquire properties through mortgages. This allows you to control a high-value asset while investing only a fraction of its worth. In the UK, for instance, a standard deposit is around 25%. So, for a property valued at £200,000, you would only need to invest £50,000 upfront.

Here's where the leverage aspect becomes crucial. As the value of your property rises, the mortgage amount remains the same, allowing you to reap the benefits of the entire property value with only a portion of your investment.

Consider this scenario: You buy a property for £200,000. After five years, its value appreciates by 25% to £250,000. When you decide to sell, you repay the £150,000 mortgage and pocket £100,000. Although the property increased in value by 25%, you achieved a 100% return on your investment—this illustrates the power of leverage.

Moreover, let's not forget the rental income. Assuming a rental yield of 6%, you could earn approximately £1,000 monthly, minus your mortgage payments. Over five years, that amounts to £17,280 in rental income.

This example simplifies the concept but demonstrates why property is a compelling investment. However, a word of caution: while leveraging can amplify returns, poor property selection can also magnify losses. Thus, it’s critical to thoroughly analyze property investments before committing to leverage.

Exchange-Traded Funds

Another asset category I actively invest in is exchange-traded funds (ETFs).

ETFs essentially bundle together a vast array of stocks into a single fund that can be traded on the stock market. In my view, ETFs differ significantly from individual stock investments, like shares in Tesla or Apple.

I learned the hard way that while picking individual stocks can yield high returns, it also carries the risk of total loss. Holding just one stock exposes you to significant risk.

ETFs mitigate this risk by allowing you to invest in funds that track major global indices, such as the S&P 500 or FTSE 100. This level of diversification means if one stock falters, you have numerous others to cushion the blow.

While ETFs may not deliver the explosive returns of individual stocks, they provide stable growth and have a history of effectively outpacing inflation over time.

Luxury Watches

This may come as a surprise, but I've always had a fascination with luxury watches.

Growing up, I admired brands like Rolex and Omega and aspired to own one. Once I started earning money, I purchased my first Rolex and was astonished to find that many luxury watches were appreciating in value rather than depreciating.

Due to limited production and high demand for prestigious brands like Rolex and Patek Philippe, these watches often trade above their retail prices. Additionally, many luxury watchmakers increase their prices annually, typically surpassing inflation rates.

For example, the market value of a popular Rolex model, the Submariner, has skyrocketed from £3,425 in 2009 to around £20,000, peaking at over £27,000 in 2022.

Certain watch brands and models behave similarly to traditional assets, appreciating over time and potentially outpacing inflation. However, while I enjoy investing in watches, they do not generate income, so I wouldn’t recommend relying solely on them for investment strategies.

Cash Reserves

In 2020, renowned investor Ray Dalio famously stated, "Cash Is Trash." While I understand his sentiment—especially during a period of low-interest rates—holding cash can still be beneficial.

Having cash reserves is crucial for maintaining liquidity. If all your funds are tied up in assets and an unexpected financial emergency arises, you may be forced to sell at a loss. Cash reserves provide a safety net during challenging times.

Additionally, having cash on hand prepares you for opportunities.

The saying goes, “Luck is when preparation meets opportunity.” As an investor, being ready to act when the right opportunity arises can lead to life-changing gains.

For instance, during the pandemic, I acquired two properties from a distressed seller who believed the market was doomed. This mindset is common during recessions, yet history shows that recoveries always follow downturns.

I purchased these properties significantly below market value, and since then, their values have surged by 50% and 75%, respectively. Leveraging these properties with a 25% buy-to-let mortgage has yielded nearly £200,000 in profit from an £80,000 investment within two years.

Had I not kept cash reserves, I would have missed out on this fortunate opportunity.

Make Your Money Work as Hard as You Do

We all labor hard for our earnings. Watching that wealth diminish due to inflation is disheartening. I invest to ensure my money works as diligently—if not more so—than I do.

Consider it this way: your goal is for your money to generate more money. Investing a dollar can yield two dollars, and those two dollars can be reinvested to create four dollars, and so forth.

In essence, you can cultivate a “family money tree” from the initial dollars you invested, allowing them to multiply over time. This is the true essence of investing.

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