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Article > How to Avoid Being Asset Rich and Cash Poor


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No matter how much advice we are given throughout our lives, it seems that many of us in the UK continue to struggle to save our money. Indeed, statistics put the average Brit`s saving at 1500 little comfort in a financial emergency. Many of these are home owners, in particular property investors, with assets aplenty. So what can be done to avoid falling into the trap of being asset rich but cash poor?

Before you begin
Investing in property can appear somewhat safer than placing your capital in faceless stocks and shares. You can see your investment and it`s tangible, touchable and true. But as attractive an investment as property can be, it is not completely fool proof. During the housing boom at the turn of the millennium, savvy investors snapped up houses with the clear plan of increasing their portfolios whilst increasing their profit. But as the economy crashed and burned the cost of maintaining these large portfolios began to escalate; what was once a symbol of growth and prosperity became something of a lame duck.

By no means are these `tales of doom` intended to deter prospective investors from the housing market. It is merely a suggestion that it should be entered into cautiously, sensibly and with the foreknowledge that the market has a habit of changing in a moment.

When you are choosing a property be clear about calculating all expenses, including projected rental or resale value. Commonly, tenants are charged around 125% of the mortgage payments as this ensures a little profit for the investor each month. If the amount calculated seems apt for the area you are considering it suggests the investment is sound with a good chance of making money. It is vital that you have those oh-so-elusive savings in place in order to cover any periods in which the property might be empty; a fine example of a time when assets will not be enough to carry you through.

Do not be tempted to spend thousands turning an investment property into your dream home. Remember it has to be for a tenant, not for you. Pouring even more money into already expensive assets has the potential to leave you dangerously short. Once a property has begun to make substantial money, you can think about possibly investing again. Rushing head first into building a portfolio might lead to lots of assets, but not much cash.

If you do encounter problems
One way to increase cash flow is to consider if you truly need all of the assets you own. Are there any you are prepared to part with? A holiday home? Expensive jewellery? A second car? Relinquishing assets such as these can release cash to support you through the hard times of property investment. Good old-fashioned savings are uncomplicated and ideal for emergencies.

Borrowing money is of course an option, but you must be careful about whether the loan is secured or unsecured. With loans you are really taking on more debt so it should not be entered into lightly. With property, equity loans are possibilities yet this negates the inheritance aspect of these types of assets.

There is the option of insolvency through bankruptcy. The stigma once attached to bankruptcy is no longer there as it is now seen as a viable option for those in financial dire straits. There are overheads of course, as it is a court procedure and there is the possibility of losing assets and cash through the ruling. Following will explain whether you will be entitled to keep any belongings or an allowance of sorts. It will not be for all, but if the idea of a fresh start appeals it might be the best option. The best thing to do in all cases is prioritise your money do not continue to accrue assets whilst you owe money elsewhere or you could end up in more trouble than your investment is worth.


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