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Flat line

A property owner needs advice on selling and whether to buy again or use the proceeds to boost their investments.

You do not say how well your investment in the Brighton flat has done but I imagine that if you have owned it for a number of years it will have made a good gain in value.

Of course, over time, you will have incurred costs in having the flat, insurance rates and utilities as well as the original buying costs associated with acquiring the property.

I mention these points because you may be surprised just how many people value the growth in property assets on a gross basis. A bit like “I bought the property for 100,000 and sold it for 200,000 six years later, that is a 100 per cent growth”. Well, yes, it sort of is but when you deduct costs and inflation, it is a little less than 100 per cent growth.

Still, all things being equal, (they rarely are by the way) property in the long term tends to be a good form of investment. I always say that if you buy a property and hold onto it for 10, 15 or 20 years, you have to be a bit unlucky not to make a profit. Of course, that can be true of investment in shares as well but shares do tend to be more volatile than property.

Shares and property in the investment context have some attributes in common. Both offer the prospect of capital growth. Both offer the prospect of income. Rent in the case of property and dividends in the case of shares.

If you are going to reinvest the proceeds of the flat in Brighton into another property that you will use to supplement your retirement income, then you will have the new experience in the form of tenants as you will need someone paying rent.

You can either manage those tenants yourself or if you don’t want that hassle, you can appoint an agent, at a cost, to do this for you.

Clearly, if there are any periods where you do not have tenants, then that part of your retirement income will dry up.

This raises the question of how much variability can you tolerate in terms of income from this investment?

Of course, if you invest in income-producing shares, there will also be variability of income. But some people prefer to invest in property as because of its tangible nature, you can touch and feel it. You can touch and feel a share certificate but it is not quite the same thing, is it?

You might want to take a look at your existing Isa, unit trust and bond portfolio (by the way, I imagine that when you use the term “bond” you are referring to investment bonds rather than fixed-interest securities). You also need to look at where your property investment fits into your total investment portfolio.

I, like many advisers, am keen on clients having a diverse investment portfolio so that they spread their investment risks around. Of course, there is further risk associated with investing in one property because the entire investment is based around the one item.

Like with your Isas, unit trusts and investment bonds, there is a compelling case for having a “basket of shares” to further reduce risk and spread your investments.

This is perhaps more difficult when investing in bricks and mortar because to build a portfolio of buildings requires either a lot of investment money or the capacity to borrow to buy the properties.

I should also re-emphasise the subject of costs. Whether you buy property or invest in collectives, there is always a cost associated with the investment, either in the form of legal costs in the case of property or management fees in the case of collectives.

Some people have had real success in the buy-to-let property market and to the extent that they have pretty much given up on all other forms of retirement planning.

For some this will work but I must confess that having all of your proverbial investment eggs in one basket is not something I would encourage.

You are different, though, in that you have a diverse portfolio and this should give you some confidence if you decide to invest in property to support your retirement income.

Nick Bamford is managing director of Informed Choice.

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