Gearing (also known as "leverage ")

Property investment is unique because of the process knows as "gearing". Your investment benefits from the capital growth of your equity and the mortgage you borrow. Here is an example:

Property purchase £60000
Mortgage @ 85% £51000
15% Invested equity £9000

If property increases in value by 8% after one year (as has been the average since 1974)), the value goes up to £64800, an increase of £4,800

The return on your investment (R.O.I.) of £9000 (not taking into account the rental income) is therefore 53.3% (£4800/9000x100)

In the above example, if the property then continues to increase in value by the historical levels of 8% per year, after 7 years:

The value of the property will increase from £60, 000 to £102829– a gain of £42829 or 71%

The equity you hold in the property will increase from £9,000 to £51829– an increase of 475% !

If the same £9000 had been invested in the stock market at 8% (if you are lucky!) your investment would have only grown by 71.4% to £15426

To achieve the same growth as our property example, the stock market would have to grow at unprecedented consistent levels of around 28% per annum

This is extremely unlikely!