This article looks at the reasons you should invest in property, overlooking some costs/risks to simplify the picture.

In the next article we will review this in more detail and explain the reasons that you perhaps shouldn't invest in property.

Investing in property has widely been seen as a smart move for the past half century. Indeed if you asked 10 people on the street, 9 of them would probably tell you that buying property is one of the smartest things you can do with your money.

An ongoing boom in property prices in the west has seen many of the Generation X and Baby Boomer generation generate substantial wealth, and the idea of "owning your own home" has been the cornerstone of the "American Dream."

Provided propriety prices continue to go up each year, then an investment in property would seem to be a good idea. Even a modest 2% increase on a property worth $500k would represent an increase of $10k.

At time of writing, the average house price in the UK is £272k ($441k) and grew at a rate of 11.7% in the trailing twelve months.

The average rental price in the UK, at time of writing, is £761 ($1,240) giving an annual rental income of $14,880.

This would give a rental yield of $14,880 over the property price of $441,000, or 3.37%

If we were to blindly assume that the same rate of growth will be seen in the following twelve months, then the numbers would stack up as follows:

A CAGR of 11.7% can be expressed as a monthly increase of 0.93%

Combined return: $67,404 = 15.28% Return on Investment

Leverage

Assuming that you do not have $441k in cash down the back of your sofa, the idea of buying a property might seem unreachable.

This is where the large power of real estate investments manifest themselves.

Assuming a "buy-to-let" mortgage at 4.5% with a deposit of 10%:

A mortgage at 4.5% would be 0.375% per month.

Monthly interest payments would be ($441,000-$44,100) * 0.375% = $1,488

By purchasing the property with 10x leverage we have managed to realize a return of almost 80% and be on course to double your investment in the space of 15 months.

If you had taken the $441k and used it to purchase 7 properties, the numbers would be as follows:

- Invested $44,100 x 7 = $308,700 - Interest Payments x 7 = -($124,992) - 7 x Property Price Growth @ 11.7% = $361,179 - 7 x Rental Yield @ 3.37% = $110,650 - Combined Total = $354,139

By using the leverage to invest in 7 properties, rather than one, the return is $286,735 higher.

Such is the power of leverage.

This is the very rosy picture of property investment and shows what can happen in the best case scenario and the reasons that you should invest in property.

However this fails to take into account the plethora of fees and other issues that you expose yourself too when buying real estate.

In the next article we will talk about the reasons why you shouldn't invest in real estate.