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  • Property-a-holics

    Equities better than BTL - Motley Fool



    The Motley Fool has an article titled "Is this the best way to make £1million from buy to let?".

    However, its really an article about how the FTSE has out-performed BTL.

    Here is the conclusion:

    According to my research, over the past 10 years, the FTSE 100 has produced a total annual return (including dividends) of 8.76% for investors. At this rate of return, every £10,000 invested back in 2009 would be worth £23,569 today, a total return of 136%.

    The FTSE 250 has produced even more impressive gains. This index has returned 12.4% per annum on average for the past decade, turning ever £10,000 invested into £33,303 — a total return of 233%.

    I think it’s fair to say that most buy-to-let investors have come nowhere near this return over the past decade. Granted, the numbers above don’t include the property’s income stream and other costs. But even if we try to include these, it’s unlikely the average landlord will be booking a return of more than 5% per annum from rent.

    These numbers tell me that equities have been by far the better investment over the past decade, and that’s without taking into account all of the extra admin costs associated with buy-to-let properties. 

    Full/source article

    The death of BTL seems to be a trending topic.  With media claims that landlords are selling up in droves, perhaps some other investment form champions have seen an opportunity to divert landlord equity into other investments?!

    Our video (below) with Graham Rowan has recently topped 100K views.  Graham exited all his resi BTL investments three years ago due to Section 24, and now invests in commercial property.


    It makes sense, from a risk perspective, to diversify a portfolio and have a variety of investments, however, BTL is probably the most simple one to get involved with because many people have purchased their own home and they understand the legal side etc. 

    There is also the "tangible" aspect of BTL and that it produces two income streams, namely cash flow, and as a bonus over the long term, you may enjoy capital growth.

    For those PT members who also invest in shares, what has your personal experience been?

    SEE ALSO  -          The best investment you can make ... and it's not in property! (Hint, hint)

    UP NEXT -              Video - "Is BTL yesterday's investment?"

    DON'T MISS -         BTL out-performs most other investments

    NOW WATCH:

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    If you have a Million in cash to invest and you dont want hassle it has to be shares

    If you want to run a business and put a bit of effort into the business it has to be BTL

    If you have made a few Million and your having some good cash flow why not invest in some shares

    If you have wealth its maybe a good plan to have both.

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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.


    I invest in shares. For 2 reasons:

    1 - diversification

    2 - low cost to enter

    but I don’t recognise that shares beat property. If you are talking yield then the best dividend yielding shares give 7-8% return. My properties deliver 10%+.

    For capital gains geared property is much much better. Yes equities have the benefit of tax efficient wrappers & greater liquidity. But better returns. Not on yield and not on capital. Sorry.

    As a store of income generated whilst building further deposits, the only other investment I’d consider is peer-to-peer.

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    I dont understand how they come to this conclusion.

    If you buy a house for £100k (£25k in the deal) and have capital growth at at say 2.5% then over 10 years that is £28k compound growth.

    If we accept that the net rental cash flow is 5% per annum on the original buy price, which is reasonable. That is £50k over the 10 years.

    Thats a total return for the above of £78k. To get it to the £10k comparative baseline they are using then the £25k/10 =2.5. So then the total £78k/2.5 = £31,200 return!

    It beats the FTSE 100 and its not that far off the FTSE 250.

    Are my numbers out? Or have I miscalculated?

    fab

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    This is the problem with all share favouring calculations. They roll capital gain in the yield then ignore property’s capital potential. If you aren’t gearing-up then it becomes a debate but otherwise it’s F1 vs Go Karts

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    Buy to let if geared can produce large gains - it is not that easy to gear up a share portfolio of quoted shares .

    HOWEVER it must be recognised that a geared property portfolio will magnify gains in a rising market but will equally magnify losses. This risk has to be carefully considered and higher returns come with higher risk



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    Dislexic & JC have debated this many times & it's questions I get asked every week by mates wanting to start house.
    If you getting good 5 year fixed rate mortgages & u get your leverage right, u can make money out buy to let.
    If u buying cash, it needs further discussion, as your can have balanced funds/trackers, that may/should perform similar or better to property with no hassle, no phone ringing, no legislation, no one changing the rules. But it does fluctuate, & don't do it if u gonna' need your money within 5 years.

    And then as DL has mentioned before pensions, if u can put in 32k for each u & your missus/partner each years, Taxman GIVES U whopping 16k on top each year. U hard pushed to get that on 64k house investment each year.

    But it's debatable, us that's been doing it for 20+ years, reckon the days of the good Capital gains are over. Was the golden years 1997 to 2004, some said? Up to 600% Capital Growth compounded in my area if u bought cheap in 97.

    If u can do houses, pensions, ISA's balanced funds Vanguard etc., then onwards & upwards.

    I recommend everyone reads Millionaire Teacher, could change your life:
    https://www.amazon.co.uk/gp/product/1119...UTF8&psc=1

    I am not a financial advisor by the way.

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    as you know I have studied this for some time

    and I think at the end of the day they both come out about the same return after you take taxation into consideration

    where property maybe wins is if you are getting a peach of a deal which gives a super yield I like over 8% before I am tempted to by a property  and you add a bit of value 

    But today in 2019 its a close run race for a BTL property with a 4% yield

    Pensions have some very strong advantages if you use them right and understand them

    I use every thing today BTL ISA and Pensions

    I will look at the book you mentioned thanks 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.


    Yes unfortunately,

    If we get the avid buy to letters that haven't fully gone into the Tax relief's on pensions etc., it's hard to convince some people.
    I have some well off Landlord mates, Estate Agents, who just don't know anything about pensions & think it's too good to be true that he gives u this money free.
    And I explain there is a limit otherwise multi-millionaires would be slamming loads into it to get 25% interest free at the point of inception.

    I used to get 40% yield on properties on purchase price, but them days are gone.
    I'm happy to accept 5% now on valuation if better area etc. for more quiet life.

    Ooh and after them books, there's more, but let's not confuse everyone with too much info.

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    First things first, the Motley Fool used to be a great source of info before they got rid of the forums and sold their souls to the gods of clickbait, but most of the articles on there nowadays are really very basic.

    DL was discussing this on another topic a few weeks ago, I've copied a bit of my reply from there because it sums up my thoughts, rather than typing it all out again. Essentially, it's diversification that wins long term, here's my previous post with a few amends:

    Even aged 30 with a very long term perspective, I'm struggling to envisage value in BTL compared to other investment opportunities, mainly due to the taxation regime. We've got 3 currently unencumbered BTLs, so the 'traditional' thing to do would be to borrow against them and use this for further BTL purchases. What I'm actually planning to do is borrow against them at 60% LTV, fix it for 5 years, and invest it in equities. This will probably be done via a directors loan into a Personal Investment Company (where you are able to hold either equities or commercial property). This company won't pay any tax on the dividends it receives from investments (because the underlying investments have already paid corporation tax), it only needs to pay (soon) 17% corporation tax on profits, and I can draw down from the directors loan account whenever needed to cover the interest on the mortgages etc. The mortgages will be at something like 2.1% and the interest will be deductible from taxable income, and I could build a portfolio that yields dividends to cover the interest payments, with some prospect for long term capital appreciation too. That tax setup compared to BTL is just crazily different. People also ignore how much easier it is to compound equity income compared to property income, you literally just buy more with no minimum requirement.

    It feels like a no-brainer if your timescale is long enough for the underlying investments to have close-to-guaranteed growth (think 10-15 years+), and it's mainly because of the tax on BTL and the fear of future legislative change because of the apparent insistance of governments to use landlords as a way to win votes. I can use any leftover dividends in the PIC each year to fill our pensions, and leave the investments themselves in there to compound and appreciate long term. If I wanted to, I could even buy REITs, so still be investing in property but just in a much more tax efficient setting, with much improved diversification, and with someone else doing all the legwork. I think many underestimate how 'risky' a concentrated, location specific BTL portfolio is when you contrast it with something like a REIT that holds hundreds of properties all across the country. (As it happens, I probably won't buy any REITs, I'll just buy a world tracker).

    People dismiss equities because they either have short term views/objectives, or because 'oh but what if the price goes down', but they don't understand it's just an issue of visibility: The price of your BTL may also go down, you just don't realise it at the time, it's only apparent with equities because you can check the value so easily. If my equity portfolio was down in value after year 1 or 2 I wouldn't care, I would still be confident that in year 20 it would be much higher, which is no different to how anyone's view on the property market should be. People get put off equities through lack of understanding, the important thing is minimising fees and investing long term. Too many people use crazily expensive, terrible providers like St James' Place, get downhearted, and think equities aren't for them.

    All I care about is the picture 20 or 30 years down the road, and in my view, today, equity investments present a much better (passive) opportunity than BTL.

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    Passive is the key. if passive is important you are right. My view is: I only have so much time and so much money and i want to rinse every last drop. You can do this with sweat and sweat your asset. If you are willing & able. Property as it stands still wins. But you do end up with a sweaty ass (et). you have been warned!

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