Capital Growth v Cash Flow

Capital Growth v Cash Flow

This is an excerpt from Chapter 5, ‘Capital Growth versus Cash Flow’ of Frazer’s upcoming book, The Alternative Guide To Property Investment. You can register your interest in pre-ordering the book by clicking on the button at the bottom of this post.

Capital growth is a very powerful concept. As Albert Einstein once said, compound capital growth is the eighth wonder of the world.

What compound growth means is that if an asset worth £100,000 increases in value by 10% a year it will only take eight years for that asset to be worth more than double its original value. In ten years it will be worth around £259,000. And that’s without leverage.

Imagine that you’re back in 1996. You have £16,000 to invest, but you’re not sure what to do with it. Your stockbroker tells you one thing, your financial adviser tells you another, and your bank manager – of course – reckons you should stick it in the bank for a rainy day.

Instead, you decide to use that £16,000 as a deposit on an £80,000 buy-to-let property in London (that was the average house price in London just 20 years ago).

Two decades on, the average London property is worth over £488,000.

That means, provided you covered your mortgage payments and costs with rental income, your £16,000 has turned into £408,000 profit. Now there may well have been various incidental costs to take into account but, I think it’s fair to say, you would still have done many times better than if you had put that money into a pension or kept it in the bank.

It’s not possible to make the benefits of property investment any clearer than that.

It is, in my opinion, far and away the best investment you can make. Imagine that property only did half as well as this over the next ten years. It would still be likely to produce several times the returns of any other asset class.

Because of the power of compound growth, many people think property is all about capital growth, and that aspect is certainly what helps make it an attractive investment. And the fact that you can leverage purchases and obtain, for example, an 80% LTV mortgage multiplies the rate at which your capital can grow at astonishing rates.

Nonetheless, many people have come unstuck by leveraging highly and speculating on capital growth. They have then found themselves in an unsustainable position having to subsidise mortgage payments as the rental income has not been sufficient to cover their financial outgoings on the property.

You may be able to support one property at £200 a month whilst you wait for it to increase in value, but how many more of those could you afford?

However, if all your properties at least ‘wash their face’ and produce a small profit from rental income, you can support as many of them as you can buy – and benefit from the capital growth in all of them.

To read more about why to invest in property, you can click below to register your interest in the book. Fill in your details, and once the book is released, we will send you more information.

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Why Invest in Property At All?

Why Invest in Property At All?

This is an excerpt from Chapter One, ‘Why Invest In Property At All?’ of Frazer’s upcoming book, The Alternative Guide To Property Investment. You can register your interest in pre-ordering the book by clicking on the button at the bottom of this post.

Fact: almost everybody wants to be able to retire at some point and enjoy the later years of their lives in comfort.

If you think the state pension will allow you to do that, then, sorry, you are living in La La Land. The government will not look after you in your later years. It simply can’t afford to.

The maximum state pension in 2016/17 is £119.30 per week. Can you live comfortably on that? In fact, can you live on that at all?

It is imperative that you do something to supplement that. Your main choices are:

  • savings accounts
  • a private pension
  • shares
  • property

I will dealing with each of these briefly.

Savings Accounts

We are always being told that keeping your money in a bank account is safe and it’s guaranteed – at least up to £75,000. That is provided the government doesn’t also go bankrupt, which is not as ridiculous as it might sound; it would have happened here in the 1970s had the IMF not stepped in, and just take a look at Greece and Italy and Portugal and Spain … oh yes, and France, to see how vulnerable many governments are right now. I do not believe saving your money in a bank account is in any way a sensible manner to provide for your retirement.

The only thing that is guaranteed is that the value of that money is being eroded year on year by inflation, and given the current rates of interest payable the net value is actually decreasing. Even if you had a million pounds saved by the time you retired at, say, 2% interest, that would only provide you with £20,000 a year income – and that’s before tax.


So, let’s look at private pensions…

The days of the final salary pension are long gone, and few, if any, private pensions have delivered what clients expected while some, it’s fair to say, have been outright disasters. The returns, whilst clearly considerably better than a savings account, are still negligible and the only people, in my opinion, who seem to really profit are the institutions that provide them.

We’ve seen pension fund after pension fund collapse, leaving thousands with substantial losses, executives ripping off their firms and employees for millions, and major holes appearing in the entire ‘safety-net’ structure. Robert Maxwell and the Mirror Group and British Home Stores are just two of a number of pension funds that spring to mind.

Please read Chapter 3 if you need convincing that the pension most people have is nowhere near enough to generate an annuity that will finance a comfortable retirement.

So whilst you definitely do need a vehicle to provide for your retirement, it definitely does not need to be an institutional or company pension.

Investing in Shares

Clearly, fortunes can be made in the stock market – if you know what you are doing. If you don’t, then picking the best tracker fund you can find would seem the most sensible option. I would not advocate against investing in the stock market but in my opinion, it is considerably more volatile than property and there are many more factors beyond your control that make it harder to invest in successfully.


Of all the investment options available, I believe property is the one people most easily understand and, therefore, are most likely to be successful with.

I mean, let’s face it, even Goldman Sachs didn’t really understand what they were peddling in the noughties. The more complicated something is, the more likely it is that investors don’t really know what they are doing or what the risks are. They don’t even know what it is they don’t know, so how can they possibly evaluate the risks?

To read more about why to invest in property, you can click below to register your interest in the book. Fill in your details, and once the book is released, we will send you more information.

I'm Interested!