Looking ahead to 2018 many people are trying to work out where to invest their hard earned money in order to get the best ROI (return on investment).
What are some options people are exploring?
- Cash ISA’s
- Crowd Funding ISA’s
- Savings accounts
- Stocks and Shares
- Buying and selling property
Have you considered adding a home extension or loft conversion to your London home for investment?
Lets examine the evidence and see the best ways to invest your money.
- Crowd funding ISAs can earn you as much as 12% interest! Whilst the interest rate may higher than most other savings accounts it also comes with higher risk and if you back the wrong horse and invest in a company that fails you can lose money
- Stock, shares and bonds can also bring you much higher rates than your savings account but do you want to run the risk? The higher the interest rate, the higher level or risk it comes with
- Buying and selling property – After several DIY programmes many jumped onto the property development band wagon but with legal fees and stamp duty so high a £40k investment will be swallowed in just fees alone.
What return can you get from a £40,000 investment?
- The average ISA is 1.3 %PA (average rate) earning you £520 per annum.
- A 5 year ISA with a 2% interest rate would earn a little over £4,000 over the 5 year period.
Now lets consider extending your home and the property market in London. I am going use the Ealing area as an example.
The average cost of a home extension is approx £40,000. If you were to add an additional bedroom in your new extension, then you could turn your 3 bedroom house into a 4 bedroom house.
- 3 bedroom terraced house in the centre of Ealing will cost £925,000.
- 4 bedroom terraced house in the centre of Ealing will cost £1,225,000.
Price difference: £300,000.
In summary £40,000 spent on an extension would give a ROI of £260,000 and the average house extension takes 10 weeks to complete.
But hang on a second!! Didn’t Rightmove predict that London house prices are going to fall in London by 2% in 2018? Would a home extension really be a safe bet or would this be a risky move like the other options discussed earlier.
The best way to evaluate risk is to look back on history and learn from peoples successes and failures.
Below is a chart of the return index by assets class and the dark blue line is the London property market. Even in 2009 where there was a drop in London house prices, it picked up soon after and the consistency here shows that London really is one of the best cities in the world to invest in.
If you really want to see a high return on your investment in 2018 then take a look closer to home with a home extension or loft conversion and turn your £40k into a £260k ROI in 10 weeks!