Quote:
Originally Posted by Goldberg Global
Please explain further this statement, if you would
Investing is about generating a total net return over and above your total costs to include the cost of introuding capital from your own savings or by borrowing in the UK and abroad.
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All the time (through my work) people tell me how they made 'x' amount from property investment but invariably they have not accounted for all costs which brings the net return down.
Some of the costs that are typically over looked include;
1) Lost interest on money that was hitherto attracting c5% interest in a savings account. £50000 removed from a savings account for 3 years would cause a loss in interest of about £8000 compounded.
2) Interest due on a mortgage. Typically people release equity from thier UK dwelling and then forget this cost and the fees involved.
An investor should deduct such costs from thier total return, but all I ever hear is "I paid £100000 and solf for £170000 so I made an easy £70000"
Of course there are many many other costs including purchase and EXIT costs, the latter often ignored by the buyouant 'investor'.
Then there's good old taxes in the host nation and the UK. Almost no one ever mentions this cost unless they are a true investor.
TAKE LAST NIGHT;
A Place In The Sun (hotspots) featured a couple that spent the last 5 years doing up a mill into appartments to let.
The toal profit quoted by the presenter was £170000 capital gain over and above improvement costs, however this failed to take account of these items:
1) Income lost as a result of the couple not working as they did the renovations themselves. I imagine they could have earned £50000 pa between them had they remained employed so thats a £250000 cost to start.
2) Tax was'nt factored in.
3) Interest lost on money withdrawn form or that could have been invested in a savings account. I would estimate that cost at at least £20000.
In other words there really wasnt a worthwhile profit to speak of, indeed I would say if they sold now they would merely earn a proportion of what they would have earned hasd they remained employed and never done the venture.