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  • Entrepreneurs

    Better off in the stock market?



    Hi all

    I am a Central London based landlord who entered the btl market in the last couple of years.

    Unfortunately I entered at the worst possible time and prices have dropped. I am in negative equity despite negotiating on the asking prices.

    I had watched others around me invest in London in the last 15 years and thought property was a safe bet in London and could only ever go up. Yields have always been low in central London anyway and so it was a capital growth play.  I will now have to wait a few years to sell and break even. 

    I had some spare funds and made a few threads in the past couple of months asking what to do with another 50k. I have been researching the town's up north where higher yields of 8%+ plus are possible. But having taken a step back and looked in to the stock market there are a number of funds which have done very well over the last 10 years. My thinking is if there has been historically little or no capital growth up north is it really worth the effort to take a risk with tenants to get a 8%+ plus growth yield when I could very easily get a minimum of 5-8% tax free in a stocks and shares isa? 

    I appreciate these discussions have taken place before and property has the advantage of leverage but if no capital growth is on the cards i can no longer see the appeal of being a landlord just to chase a yield which can be achieved hands off in the stock market.

    I would be keen to hear from landlords in areas where capital growth has not been great and why they continued to invest solely for yield as opposed to the stock market? 

    Thanks
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    HI. 

    You have entered at a precarious time, especially.in the London market.

    I mean this in the nicest possible way but your thoughts about funds seem similar to your London investing. Ie the london market had been very strong for an extended period of time and then you thought you would enter.

    The stock market is similar, funds have been strong for a long time but I wouldnt say it was a safe bet that they will continue in that direction. Funds only go up if the underlying index rises and we may be entering a period where this may not be the case.

    Obviously you would.still receive dividend payments.

    Have you considered other areas for investment?...outside London but not up north and perhaps in an area where capital growth is still possible. I invest in Hampshire but I am sure other areas may provide similar options.

    Alternatively if you dont need the dividends now, using a SIP would.give you.an instant uplift with the government additions. You could.invest in a mix of funds, bonds, property index, commodities etc within the Sipp to hedge the risk but this only works if you don't need the money instantly available
    . Jason
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    Does this question relate to the spare £50k cash - or what to do with your BTL?

    Impliedly if you sell now you crystallize a loss - and would have to input some or all of the £50k cash to pay down o/s loan/sale fees.

    I would want to look at some conservative projections over say next 10 yrs for what CG may derive from the BTL.

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    Assuming an 8% yield and 75% ltv after running costs of 15% and mortgage rates of 5% you would make 12.5% return and roughly 10% after tax, so leverage makes you more money.

    As for growth if you assume 0% and inflation is around 2% you would make  2% loss on the purchasing power of you deposit so you can knock that off your yield.

    If you assume (as I do) that over a 10-15 year period property will AT LEAST keep up with inflation then your deposit money will keep its value but you will make profit on the 75% mortgage @2% (around 6% return)

    0% growth 8% return 

    2% growth 16% return

    Andrew
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    Hi I fully understand what you are saying

    I have said  the same  over the years on PT

    SE landlords are now starting to switch on to the fact that Northern Landlords have known for 10 years

    I have been told more than once that my view of property is wrong

    But you are at the sharp end in London and your supporting every thing I have said and I want to thank you for being so honest

    I can advise you that if you only invested in the L&G property fund you would have been 40% better off today if you had invested 5 years ago with a lot less hassle and effort and worry and  all profits would have been tax free if you had used a ISA

    I wish you luck I think If you can hang on and don't sell and ride the storm you will make money but its going to take you maybe ten years

    Relaying on Capital Growth on the short term is a mugs game Rough storms are going to Hit London and the SE

    DL

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Why not turn your attention to other areas in the UK? An area that offers both high yields and capital growth.
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    "i can no longer see the appeal of being a landlord just to chase a yield which can be achieved hands off in the stock market"

    I think you've answered your own question very well - and lots of other landlords are thinking the same...

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    DISCLAIMER just my personal opinion - for legal advice consult a qualified professional grown-up.

    Just my two pence worth..

    I’ve held stocks and shares for almost a decade and they’ve done well. However I believe that if you want a monthly income like I’m trying to achieve now, then rental income looks more reliable to me because stocks fluctuate and dividends are usually quarterly. If it’s a longer term investment you can afford to set and forget then the stocks and shares isa is ideal. 


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    ManInTheMoon


    Hi yieldinvestor,

    Here’s an interesting thread by DL on capital growth and her approach to BTL, which is very informative:

    Thoughts on the old chestnut - capital growth

    We can’t and don’t provide financial advice on how you should spend your £50,000 so nothing in this post should be viewed as such. However, if you do decide to invest in BTL and are looking for yield and want to de-risk your investment, then you could always consider buying a tenanted property from another landlord. This would mean earning rental income from day 1, knowing the tenant history and how they look after the property, knowing what the rental level is (as opposed to having to estimate it) and saving on lettings fees. You can find all types of tenanted investment property at Vesta (https://www.vestaproperty.com) if that’s of interest.

    Good luck with your investment, whatever you decide to do with it!

    Kind regards,

    Team Vesta
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    “little or no capital growth up north” - it is my understanding that the north of England (especially the big citys of the NW) have not only received solid capital growth over inflation for the last 5-6 years but are primed to keep on doing so, one of the main factors driving this is the relatively stagnant market in London and the SE.
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    this is 100% correct, i've seen huge capital growth in the last 4 years on my Manchester property. £150k in 2015, now valued around £220k which as a percentage is fantastic imo. This idea that there is "no capital growth on the cards" is simply incorrect. Liverpool, Sheffiled, Nottingham, Leeds are all primed to go the same way as Manchester. I believe Leeds has the fastest growing population outside of London which can only be a good thing for BTL and CG.

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