“The Property Markets will Change Over the Short Term but Real Estate Investing will Always Endure.”

This is a guest article written by Eugene Gamble and first appeared in our collaborative e-book “The Future of Property,” which features 17 thought leadership articles covering PropTech, property investment and housing. You can download your free copy here.

Eugene Gamble is the founder of international property investing site weFUNDyourFLIPS.com and believes that partnerships are the surest way to success. Eugene has been featured on over 50 media outlets, working with Time, Forbes and the BBC. Eugene is also an international speaker and shared the stage with the likes of Award winning actor John Travolta, fashion icon Calvin Klein and Randi Zuckerberg of Facebook fame. Connect with him at EugeneGamble.co.uk.


“The property markets will change over the short term but real estate investing will always endure.

When you look at the richest people in the world like Bill Gates, Warren Buffett and others, you will see that they have accumulated vast holdings through various different means. They do have one thing in common, however. In an effort to reduce risk to their wealth, they have all diversified and spread their fortunes among the various asset classes, including property. In doing so, they are admitting that they do not know what the future holds, or which assets will perform better or be safer at any given moment in the future.

It is important to understand the various asset classes to gain an appreciation of their relative merits. The main asset classes are Shares, Bonds, Property, Commodities and Cash. Each class has a selection of advantages and disadvantages, which are laid out below.

Cash is the benchmark with which to assess all other asset classes. Cash provides a safe haven for funds when markets elsewhere are particularly volatile and it is the most liquid of the assets. Unfortunately, you do not get great interest rate returns and cash is not protected against inflation. Shares are also known as equities and allow you to own a portion of a company. It is a liquid asset so you have the ability to get in and out quickly. Historically, they perform well over the long term. Share prices can be volatile however, and crashes do occur. Company performance is out of your control and boards can decide to reduce or stop issuing dividend returns.

Bonds are also known as fixed-interest stocks. They are a type of loan, usually to a government, and are issued when a government wants to raise funds from investors. They are a low to medium risk investment where you have relative certainty about your returns. There is, however, minimal protection against inflation. Commodities cover a range of physical products such as oil, gold and wheat. Prices rise and fall in response to supply and demand. Commodities have low correlation with other asset classes - meaning they may not be affected when other asset classes are going through troubles. Gold is considered safe and a good inflation hedge. You do not get a regular cash flow return, however.

Property has a good record of providing inflationary beating financial returns. You have a number of options on how to invest, whether through the purchase of a physical ‘bricks and mortar’ building or through shares in a property development or real estate investment company. Liquidity can be an issue as you cannot convert back to cash quickly without losing a portion of the property’s value.

“Everybody needs a place to live and even with the changes in working environments, ‘bricks and mortar’ locations will still be required for businesses.”

Everybody’s needs and desires will be different when it comes to allocating their money and investments. Some people want a steady income on a monthly basis, while others are looking to maximize their returns over a given time period. Once objectives have been figured out, individuals can then look at the best assets to achieve their stated aims.

Although a brief summary on property is given above, it is worth looking at property as an asset class in detail. It contains a number of characteristics that make it unique among its peers. One of the biggest advantages with property is that it can never be worthless. It will always hold some intrinsic value. It does go through cycles like everything else but, unlike shares, its value will never be zero.

“Industries can be disrupted by innovation and companies that were once on top can find their products or services no longer required.”

Industries can be disrupted by innovation and companies that were once on top can find their products or services no longer required. Property, on the other hand, will always be in demand. Everybody needs a place to live and even with the changes in working environments, ‘bricks and mortar’ locations will still be required for businesses. Moreover, property can provide a regular and steady flow of income through rental charges. As a property investor, you have the opportunity to acquire cash flow that will provide you with day to day living expenses on a relatively passive basis.

Property markets will always go through market cycles, as people will always speculate on the future value of any asset. If you take a step back, you will see that the ups and downs tend to become less noticeable as the market shows an upward trend generally. Although real estate is a single asset class, there are many strategy options available to investors. You can invest in residential property or commercial properties, ‘buy and hold’ or flip or you have the ability to invest in different regions or countries.

In the long run, inflation is guaranteed to erode the value of your wealth. Prices of everyday expenses tend to increase and your money doesn’t have the same buying power it had. Cash and bonds are powerless to prevent this. Real estate is in a very strong position to mitigate this insidious process as you can increase your rents to match inflation and the asset’s capital appreciation will also rise.

Real estate is the only asset class that gives you the ability to leverage the power of your money. Lending institutions are prepared to loan you money that gives you the ability to purchase a building without having all the cash required to complete a purchase. Once you become a landlord, you do have control over what is done with your property. You can look to extend or divide, depending on individual circumstances, which can increase the ultimate value and maximize your returns.

No asset class is perfect and there are major disadvantages to real estate as an investment. Unlike shares and bonds, there are sustained costs and efforts involved in the continued holding of properties. Renters do not tend to look after your asset as well as you do, and so upkeep and maintenance is required to ensure that your investment doesn’t depreciate.

“The future will always contain governmental changes, regulatory updates and industry disruptions that will change markets one way or another.”

Management companies can make all the arrangements so you do not physically have to be present, but there will be a cost associated. Other expenses include holding costs like property taxes and loan interest. If you have invested wisely the rental income should cover these expenses but you still need to be aware.

If you require cash quickly, having equity trapped in real estate can provide you with some big challenges. Buying and selling property is a slow process when compared with other assets and may be an important consideration for your particular circumstances. The capital outlay required for the purchase of a property is high. In many cases, a property investment will likely be the biggest expense some people make in their entire life. Recent industry developments have mitigated this with the advent of crowdfunding opportunities. You can invest a small proportion towards a property purchase and share in the eventual returns.

The future will always contain governmental changes, regulatory updates and industry disruptions that will change markets one way or another. There will also be fundamentals that will remain constant and ensure that real estate investing will generally be safe and secure. One of the major constants within real estate is that there will always be a demand for property. It is one our basic needs and that will never change. Real estate investing is not like other industries that can easily be disrupted with technology.

Notwithstanding what China is doing in the South China Sea, it is almost impossible to create more land. This leaves us with a cap on supply. Likewise, population growth will continue to increase over time and this will augment real estate demand. And given that supply is capped, this demand will boost real estate prices and enhance the returns for those already invested.

Although the trend for real estate prices is a general uptrend, there will always be speculation with boom and bust cycles. Over the short term, the real estate markets in different regions will change as they go through market oscillations. You need to be aware that this will happen so that you can prepare yourself for the emotional ups and downs that can occur as a result. Investors are always looking to make money quickly and they will take leave of their senses to fuel these short term up and downs. By staying the long course, you should be fine.

“No picture would be complete without touching on Black Swan events. These are unseen events that you cannot predict.”

There is no perfect real estate investment strategy that works best in all market conditions. As mentioned above, market conditions will vary over time. Investment strategies will also need be adjusted to maximize returns. No picture would be complete without touching on Black Swan events. These are unseen events that you cannot predict. Obviously as they are unknown they cannot be discussed, but should be noted so that you can attempt to mitigate the risks in your real estate investment strategy.

It is important to have a plan when it comes to investing. Understanding the different asset classes with their advantages and disadvantages is important if you are to achieve your financial goals. The richest people in the world all have some element of property in their holdings - even if they originally made their money elsewhere. The property markets will change over the short term but real estate investing will always endure.

- Written by Eugene Gamble
hbspt.cta.load(2646356, 'adf3edbe-f3da-468f-afdf-168f2aecc896', {}); // ]]>

Capital at risk