Regarding your piece yesterday on balancing one's portfolio and finding safety, I would add a somewhat personal view. As I am in the finance industry myself, the restrictions on investing in listed securities is quite a burden and I'm finding traditional buy-to-let investing more and more compelling. It should work reasonably well also as an inflation hedge, since the rent can be adjusted with inflation and the real value of the principal generally moves with inflation. Of course this equation depends on things like whether your area has population growth and the yield curve of your respective currency, but at least in EUR the FIXED financing costs are so ridiculously low that it is hard to see how one can lose money on a say 60-70 percent financing over a 15-20 year horizon. A practical issue is that there is a (modest) amount of work when finding a new tenant, for example. For me, this also provides a nice additional retirement income, since the tenants have paid off the bank loans roughly at the same time as I'm about to leave the workforce, so that the rents become cash flow to me. Just a personal thought here, it may not be the best choice for everyone.
Thank you for this informative email and I agree that the potential for raising rents is an attractive inflation hedge, not least because property prices, as fixed assets, tend to rise with the inflation rate. However, it is also worth considering that property prices have been boosted by quantitative easing and the ridiculously low funding levels that you speak of have been available to everyone for a decade already. The key, as you mention, fixing financing costs, low leverage and attractive capitation rates.Click HERE to subscribe to Fuller Treacy Money Back to top