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Investment: Investment Versus Speculation

Overview

For most people starting out in international property investment, or investment of any kind for that matter, it is important to focus on buying assets and generating income. This is the basis from which to build a portfolio. This isn’t to say that investing purely for capital growth is not a viable approach. In fact when selecting an investment property, the ideal scenario is to find one that generates cash and increases in value.

The danger for investors with a small portfolio comes when you invest in property purely for capital growth. If you are investing in a property which only breaks even in terms of income, or even worse costs you money every month, but you expect it to increase in value over time, you are not actually investing; you are speculating. These capital growth oriented investments have a place in an investment portfolio, but the cash generated by other assets in your portfolio should comfortably generate sufficient income to fund your outgoings on any speculative investment.

Understanding the difference between speculation and investment is also important from the point of view of analysing markets. If most players in the market are speculating on future capital appreciation and are not generating yield on their investment, then it is likely to be a bubble. On the other hand, a market where all the property owners are investors generating attractive amounts of rental income on their properties will be sustainable.

© Vacation Work 2005

“Where to buy a property abroad – An investors guide”, First edition 2006 David Cox, Ray Withers, Kate Godfrey.

Reproduced with the permission of Property Frontiers.

Further information on this topic can be found in “Where to buy a property abroad – an investors guide” 1st edition, by David Cox, Ray Withers and Kate Godfrey.

This book is available from all good bookshops nationwide at a recommended retail price of £12.95 or can be ordered directly from www.aninvestorsguide.com for £10.95 including postage and handling (to UK addresses only).

www.propertyfrontiers.com


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