Buy-to-let property vs stocks and shares: where is best to invest £50k?
Would your cash fare better in the property or stock market?
By Rachel Mortimer 8 September 2021 • 6:00am
illo
In the not-too-distant past, regulatory red tape and punishing tax changes sounded the death knell for the buy-to-let market as landlords sold up and left.
But the sector has enjoyed an unexpected recent revival, however, thanks to savings made under the stamp duty holiday and rising rents bolstering investor returns.
This has coincided with increasingly attractive income prospects. In July 2021, the North, East of England, South West and South East all recorded double-digit growth in rents. Nationally, rents rose by 6.2pc compared to the same month last year, according to Hamptons estate agents.
But buying and renting a property can be a complicated process that involves a lot of management and high costs such as stamp duty and legal fees. Would it be easier and more lucrative to invest in the stock market?
Telegraph Money has crunched the numbers to see whether £50,000 would perform better invested in properties or companies over a typical 10-year period.
Property
Soaring house prices mean landlords with a £50,000 budget would need to be savvy when choosing where to buy. Investors will be priced out of the likes of London and the South East, for example.
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Private Finance, a mortgage broker, analysed the potential returns in the best and worst scenarios for a buy-to-let property. It considered a home in Sheffield, a popular location for investors because of its modest house prices, large student population and strong employment prospects for workers.
Using their £50,000, a landlord would need to set aside £2,500 for fees and would then need to borrow £147,500 in order to purchase a four-bedroom property worth £190,000.
In a best-case scenario, the property would be let for £850 a month, rising with inflation, for the full 10-year investment period. Mortgage costs would be £297 a month, which we have assumed would stay the same for the full decade as long-term fixed deals are available at 2.5pc.
In this example first-year profit would be £4,638, rising to £6,225 in the final year. The overall profit would be £54,106.
However, renting a property is rarely that easy. Most landlords have void periods – the time between one tenant leaving and the next arriving – when they do not have rental income.
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If the property in our example was left empty for two months each year, the returns would be more than a third lower. Profits would be £2,938 in the first year, reaching a total of £35,406 at the end of the decade.
However, these profits could be enhanced by underlying growth in the value of the property. The house price boom of the past year has resulted in exceptional growth, but even in more normal times property values tend to increase over the long term.
Working on an assumption of house prices growing by 2.1pc each year, in a decade the example property would be worth £229,079 - a rise of £39,079. When this is factored in it leaves the best-case scenario landlord with £93,185 back on their £50,000 initial stake.
In our less successful scenario, the landlord would have made £74,485.
Taking stock
Would landlords be better served by investing in the stock market instead? Here you eliminate the risk of void periods of problem tenants, but returns depend on how much risk you are willing to take.
Advertisement
AJ Bell, a fund shop, analysed two potential outcomes. In the first scenario, our investor placed their cash in company stocks, which have historically returned 5.3pc per year, based on data from the past six decades.
A £50,000 sum invested in this way would return £2,525 in the first year. By the end of the decade, thanks to compounded growth, our investor would have a pot worth £81,833.
But many people would shy away from investing directly in companies. More cautious investors may prefer gilts and bonds. AJ Bell said these investments had typically returned 2.7pc over the past six decades. If this were to continue for 10 more years the investor would have £63,693.
Both scenarios assume stockbroker charges of 0.25pc are applied. In this example the case study had invested directly in companies; if they were to invest in funds then management charges would also have to be deducted.
Those looking to avoid risk altogether can keep their money in cash, but even the best savings accounts struggle to beat inflation. An account paying 0.6pc interest would grow £50,000 into just £53,082 over the 10 years, AJ Bell said.
Which is best?
The buy-to-let property offers the best returns overall in this analysis. The landlord would have made a profit of £54,106 from rent, plus a further £39,079 from the growth in the value of the property. This brings the total profit to £93,185.
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By contrast, the best stock market scenario would return a profit of just £31,833.
Each of these scenarios looks at profits before tax. Both types of investor will potentially have to pay capital gains tax, as their assets will have risen in value. They will also be liable for income tax on their income, and dividend tax if the shares have paid out to investors.
The stock market investor could protect themselves from the taxman by using an Isa, but the investment would have to be spread over a number of years given the annual allowance is currently £20,000.
Landlords will also be forced to pay stamp duty at three percentage points above the standard rates, should they already own another home. For a property purchase of £190,000 this would mean a £7,000 bill, another cost for landlords to consider.
The best option depends on an individual's approach to investment. Maintaining a buy-to-let property requires significant amounts of time and effort: if something breaks it is the landlord’s responsibility to fix it and the standard of tenant can often be luck of the draw.
Advertisement
Investing in the stock market is a much more hands-off affair, but average returns are subsequently lower.
Related Topics
Buy to let, Shares
84
The Telegraph values your comments but kindly requests all posts are on topic, constructive and respectful. Please review our commenting policy.
84 comments
CS Advisor
Newest | Oldest | Top Comments
Jimi Hendrix
8 Sep 2021 6:33PM
Don't 'invest' in property. Property is a liability. Invest in shares. As a country we over invest in property. Enough. Buy shares and help boost the real economy.
Flag
2Like
Reply
Stuart Davies
8 Sep 2021 6:08PM
BTL expenses soon and regularly gobble up your gross profit.
Flag
Like
Reply
Jonathan Collard
8 Sep 2021 6:06PM
I’ve been an accidental landlord for 25 years…albeit I’ve intentionally added extra properties. To be honest it’s not a money making endeavour at all… more of a safe harbour in a mixed portfolio of investments. Tenants genuinely are a pain in the backside irrespective if they are professionals like accountants and lawyers or blue collar workers like hair dressers or mechanics. ( I’m no snob; left school at 16 as an apprentice). Unless you are doing this on an industrial scale with 30 or 50 plus properties then best avoid rentals. New tax rules are a killer and when you have your hand down a toilet retrieving yet another causally discarded tampon you’ll rue the day….. 🙄
Flag
2Like
Reply
Cavan Davidson
8 Sep 2021 5:54PM
Bad tenants, boiler replacements, agency fees, maintenance..... loads of extra costs in owning property.
Also, some very studenty towns and cities have areas where multi bedroom houses cannot simply be turned into homes in multiple occupation (HMOs)
Also, the house buyer in this instance is leveraged to nearly 3x equity.
Flag
2Like
Reply
Ford Prefect
8 Sep 2021 5:31PM
If you get a buy to let in a university town, you could collect on a uni student let, a rent of around £2,500 per month for ten months. I know that uni students trash the place, Been there, done that, but the parents will pay for damages. Uni students are often hard work but give tremendous returns.
Cash invested should be in an ISA and would be free of tax. Now that I have retreated from property ( I am 83), my money is in funds and showing a tax free return in excess of 20% so someone, possibly the columnist, needs to do more sums.
Flag
1Like
Reply
St John Quintrell
8 Sep 2021 5:15PM
What about maintenance costs and taxation?
And if comparing like with like, you would employ a property manager to deal with the ongoing letting and maintenance issues.
Flag
2Like
Reply
Big Mac
8 Sep 2021 5:13PM
The BTL also assumes someone won't trash the place or need to be evicted via the courts.
Flag
2Like
Reply
Steve Don
8 Sep 2021 5:32PM
Exactly, most landlords have at least one horror story if been doing it for 10 years.
Stocks and shares, comparatively are so much less hassle and stress.
Flag
3Like
Reply
Anthony Chambers
8 Sep 2021 4:57PM
Also, I cannot remember the last time HSBC called me up to ask for a new shower head because the other one is broken. No, they just happily credit my index tracker with a dividend.
Flag
4Like
Reply
Anthony Chambers
8 Sep 2021 4:51PM
This is a completely unfair comparison. You cannot compare a leveraged property with an unleveraged share. If you want a fair comparison, try comparing NASDAQ x3 index tracker with a 65% buy-to-let property. You will soon see that shares vastly outperform the housing market.
Flag
3Like
Reply
krys hazel
8 Sep 2021 4:18PM
Look at what paintings are going for at Sotheby's auctions. Buy something by an established artist (no need to actually like the work) and keep it for a few years.
Flag
1Like
Reply
Richard Burlton
8 Sep 2021 3:54PM
I expect better from the Telegraph; the BTL figures made no allowance for management fees, letting fees, property maintenance and regulatory compliance costs. There is also no warning that investing in a single property comes with the risk of a bad tenant who fails to pay the rent and costs a small fortune to evict.
Investing in the stock market is far more secure if you go for a diversified portfolio and the investment is far more liquid
Flag
11Like
Reply
Anthony Chambers
8 Sep 2021 4:52PM
@Richard Burlton And they are comparing an investment with leverage against one without.
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1Like
Reply
William Rusbridge
8 Sep 2021 3:36PM
Think long and hard about a BTL. It can work if you have good tenants but the gearing is fairly horrendous.
If you have to put in a new bathroom or kitchen every few years then the 10% yield is soon reduced.
At least with a ftse company you can trade in seconds, its cheap and absolutely no hassle.
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8Like
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Anthony Chambers
8 Sep 2021 4:53PM
@William Rusbridge If you want a better return based on leverage, there are FTSE x3 index trackers too.
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Like
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roger white
8 Sep 2021 3:22PM
BTL is - despite all the taxes & crackdowns - far the superior investment..& if invested in the best locations virtually guaranteed - while stocks & shares are far more liable to fluctuations in performance & ups as well as downs.
Faang stocks might be comparable.
The article is spot on.
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1Like
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Paul Wilson
8 Sep 2021 4:48PM
@roger white Stocks, while volatile in the short term, ALWAYS rise in the long term. That is, as long as you invest in index-linked funds. You are on your own if you invest in individual shares.
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Like
Reply
N Tobin
8 Sep 2021 3:01PM
Give me shares any day.
I can dump them tomorrow and move the money anywhere In the world if an idiot like Corbyn or Starmer were foolishly elected.
They can also be protected in ISAs
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4Like
Reply
Steve Willis
8 Sep 2021 2:58PM
Equities win hands down. No work. Ignoring the idiocy of comparing leverage
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Like
Reply
Norman Brown
8 Sep 2021 2:22PM
This analysis is deeply flawed. You compare a leverage investment in property with an unleveraged investment in shares. Leverage hugely increases risk. Like for like will show the stockmarket investment offers a far higher return - and, if you wish to avoid leverage, you can't do the property with only £50k.
Plus the journalist doesn't mention tax. There's no tax relief available on your property investment, whereas you should, within 3 or so years, get your shares into an ISA, giving you tax free returns.
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9Like
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Mike Isaacs
8 Sep 2021 1:41PM
If you’ve only got 50k to spare, I wouldn’t bother. You could easily lose the lot if it’s used as front money.
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2Like
Reply
john brown
8 Sep 2021 1:21PM
property is a good bet but so often the bet is hampered by unforeseen issues-
No mention of all the regulation checks required..HMO licence, if it’s more than 2 people, smoke alarms and PAT equipment checks.
Then there is the likely changes in tenants protections- possibly the worst being rent controls and sitting tenants.
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2Like
Reply
Nigel Masters
8 Sep 2021 12:48PM
If the investment is made into equities then a small amount, possibly within the tax free exemptions may be sold every year, also a transfer could be made to a spouse utilising their yearly exemption, again avoiding tax.
If the investment is a buy to let everything has to be sold at once thereby ensuring that most of the capital profit is taxable.
It should also be remembered that disposing of property can take some time unlike equities which have a known value on sale date with proceeds due on a set date.
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5Like
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Geoff Willis
8 Sep 2021 12:15PM
The example uses leverage on the BTL side. A fair comparison would use margin to buy the stocks, although you can't borrow as much as with a mortgage.
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6Like
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J Clark
8 Sep 2021 12:12PM
Unclear why buy-to-rob was exempted from the new social care 'levy' of 1.25%.
If it's good enough for dividend income, it's good enough for parasitic intermediaries tying up scare property that would be better occupied by owners.
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3Like
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Joseph Ridout
8 Sep 2021 12:31PM
It's already taxed at very high levels.
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4Like
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Steven Rose
8 Sep 2021 2:38PM
@J Clark
Income from btl is taxed, including NI, so it will be covered.
Besides, who wants to live in "scare property"? It sounds frightful!
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1Like
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Stuart Davies
8 Sep 2021 6:15PM
@J Clark I think BTL profits fall into income tax category & rates.
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Like
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Russell Thornley
8 Sep 2021 11:46AM
You can of course minimize your involvement in managing/maintaining a BTL by getting an agent to manage the property, but that eats into your profit (choose your agent carefully - they are often in cahoots with their panel of electricians/plumbers/plasterers etc) so a simple job to replace a faulty lightswitch/socket can cost you significantly more. If you manage your properties yourself, you need at least a tame electrician, plumber and/or heating engineer/gas man who is reliable and doesn't charge the earth
Another thing to consider with BTL is the ever changing regulation environment - and this is going to get worse over the next few years. Energy performance of properties is going to get much tougher and it is proposed that all BTLs will need to have an EPC of a 'B' or higher by 2028/2030. This is going to impose big costs of insulation, heat pumps, glazing replacements etc on landlords. We will see even more small LLs exit the BTL market as these changes begin to bite. Rents are going to go UP.
One thing I will say after being a BTL landlord for 24 years, if you want an easy/less stressful life - BTL is Not for you. 10/15 years ago it was, but not any more.
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15Like
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John Cutmore
8 Sep 2021 12:12PM
Yes agree with all of this above. I used to be Hands on but have now moved away so my properties are with an agent which is cutting around 20% off profit even with a commission rate at 8.5%.
I generally decorated properties myself as would generally cost 2k a pop for 2 coats in a 2 bed property. I could knock this out in a week or so myself.
I have certainly considered selling all and reinvesting into property let’s or something else.
Answering someone else’s comment about not using finance. With credit so cheap in the last 10 years it would have been silly not to use it even with the tax changes to interest. This can be negated by maxing pension contributions.
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3Like
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ross denholm
8 Sep 2021 11:45AM
The property example ignores the cost of maintenance, roof repairs, boilers, garden maintenance etc.
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15Like
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Gary Cole
8 Sep 2021 1:05PM
@ross denholm And needing to reach EPC C by 2027...
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1Like
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Runtime VIA
8 Sep 2021 11:45AM
Tell me where I can buy a flat for £50k that will see a 8%+ return and I'll get in touch with the local agents now.
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1Like
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Ned Ryerson
8 Sep 2021 11:53AM
@Runtime VIA
You didn’t read the article properly.
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7Like
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Runtime VIA
8 Sep 2021 11:55AM
@Ned Ryerson 0/10 for that godawful reply. Explain why, in an article that talks about buy-to-let, did I misunderstand the central point that investing £50k means I need to acquire a property to let that will make a profit???
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1Like
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Joseph Ridout
8 Sep 2021 12:32PM
Heard of a mortgage?
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3Like
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Ben Chater
8 Sep 2021 11:34AM
I’d agree with this article. Returns in B2L mentioned here mirror the returns I have made over the past 5 years on 3 flats I have purchased. This article doesn’t factor in maintenance costs. I’d allow 10-15% per year
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4Like
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robert storey
8 Sep 2021 11:19AM
Stocks. The UK stock market is undervalued. Hardly risen at all in 20 years so plenty of upside but with a rising yield. The ftse100 is big safe global mega corps.
Property is incredibly vunerable to any kind of economic shock especially interest rate rises. Bank of England thinks 1% rise in rates would cause 20% fall in value.
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2Like
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Joseph Ridout
8 Sep 2021 11:32AM
Whilst I agree with your headline answer of "stocks", the FTSE100" is full of junk.
There's what ... 5 investable companies in it
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2Like
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JP Law
8 Sep 2021 3:14PM
@Joseph Ridout
There are the FTSE 250 plus AIM plus there are 20,000 retail investment funds, investing in a huge range of assets, available in the UK. Plus overseas shares.
Plenty of options.
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Like
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Anne Burke
8 Sep 2021 11:12AM
Thé major différence is in the assets liquidity. If you need the money for an unexpected crisis or similar then stocks are easily sold, with property you cannot sell off the back bedroom. The whole investment needs to be sold with the consequent costs.
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7Like
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Comment Now
8 Sep 2021 11:12AM
In the UK we seem to prefer investing in anything rather than in the stock market. In the US, it seems that the stock market is the default place to go. The US approach makes more sense in the long term.
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4Like
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Philip Cook
8 Sep 2021 11:08AM
If you’d invested 50000 in quant back in February this year, your portfolio would be roughly 375000
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Like
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David Glover
8 Sep 2021 10:57AM
A house purchase is a leveraged bet. You put 50k down and take on 200k of asset.
Unless selecting less common financial instruments, the stock market is not.
If both markets drop 50% you lose 25k if in stocks and 100k if in housing. I.e you have 25k left if in stocks and you own nothing and owe someone 50k if in housing.
The risk factors between the two are clouded by recent history.
Flag
7Like
Reply
robert storey
8 Sep 2021 11:24AM
@David Glover people think property only goes up in value because they think government policy deliberately makes that the case. In fact the policies that have kept house prices high were to stop unemployment rising and to help banks recover from 2008.
Flag
1Like
Reply
Steven Rose
8 Sep 2021 11:56AM
@David Glover
"A house purchase is a leveraged bet."
It is in the example chosen, but not if you had £100,000 and chose property in a cheaper location.
But as an example of how leveraging can work to your advantage, 10 years ago we borrowed £50k against our own house and bought a dilapidated place as a btl outright. We paid off the loan, from the rent, after 8 years so now the majority of the rent is profit. Meanwhile the property has trebled in value.
Our initial investment? Zero.
Now that's what I call a return!
Finally, shares halved briefly in the 2007 crash, but when has property ever done the same? Especially over a ten year period.
Flag
Like
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Hugo Davies
8 Sep 2021 10:52AM
Passive tracker funds?
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Like
Reply
Oliver Murphy
8 Sep 2021 10:42AM
Interest only mortgage for 10 years?
Flag
1Like
Reply
Mark Vaughan
8 Sep 2021 10:31AM
No allowance is mentioned for the expenses incurred on rentals, landlord insurance, annual gas safety checks if applicable, repairs etc which can eat into overall annual income
Flag
7Like
Reply
Nick Smith
8 Sep 2021 10:23AM
Talk about apples and pears.
How about subtracting a notional annual salary from the time and effort needed to look after the properties?
You know, the one you could actually be earning elsewhere while your stock market investments look after themselves?
Flag
13Like
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Would your cash fare better in the property or stock market?
By Rachel Mortimer 8 September 2021 • 6:00am
illo
In the not-too-distant past, regulatory red tape and punishing tax changes sounded the death knell for the buy-to-let market as landlords sold up and left.
But the sector has enjoyed an unexpected recent revival, however, thanks to savings made under the stamp duty holiday and rising rents bolstering investor returns.
This has coincided with increasingly attractive income prospects. In July 2021, the North, East of England, South West and South East all recorded double-digit growth in rents. Nationally, rents rose by 6.2pc compared to the same month last year, according to Hamptons estate agents.
But buying and renting a property can be a complicated process that involves a lot of management and high costs such as stamp duty and legal fees. Would it be easier and more lucrative to invest in the stock market?
Telegraph Money has crunched the numbers to see whether £50,000 would perform better invested in properties or companies over a typical 10-year period.
Property
Soaring house prices mean landlords with a £50,000 budget would need to be savvy when choosing where to buy. Investors will be priced out of the likes of London and the South East, for example.
Advertisement
Private Finance, a mortgage broker, analysed the potential returns in the best and worst scenarios for a buy-to-let property. It considered a home in Sheffield, a popular location for investors because of its modest house prices, large student population and strong employment prospects for workers.
Using their £50,000, a landlord would need to set aside £2,500 for fees and would then need to borrow £147,500 in order to purchase a four-bedroom property worth £190,000.
In a best-case scenario, the property would be let for £850 a month, rising with inflation, for the full 10-year investment period. Mortgage costs would be £297 a month, which we have assumed would stay the same for the full decade as long-term fixed deals are available at 2.5pc.
In this example first-year profit would be £4,638, rising to £6,225 in the final year. The overall profit would be £54,106.
However, renting a property is rarely that easy. Most landlords have void periods – the time between one tenant leaving and the next arriving – when they do not have rental income.
Advertisement
If the property in our example was left empty for two months each year, the returns would be more than a third lower. Profits would be £2,938 in the first year, reaching a total of £35,406 at the end of the decade.
However, these profits could be enhanced by underlying growth in the value of the property. The house price boom of the past year has resulted in exceptional growth, but even in more normal times property values tend to increase over the long term.
Working on an assumption of house prices growing by 2.1pc each year, in a decade the example property would be worth £229,079 - a rise of £39,079. When this is factored in it leaves the best-case scenario landlord with £93,185 back on their £50,000 initial stake.
In our less successful scenario, the landlord would have made £74,485.
Taking stock
Would landlords be better served by investing in the stock market instead? Here you eliminate the risk of void periods of problem tenants, but returns depend on how much risk you are willing to take.
Advertisement
AJ Bell, a fund shop, analysed two potential outcomes. In the first scenario, our investor placed their cash in company stocks, which have historically returned 5.3pc per year, based on data from the past six decades.
A £50,000 sum invested in this way would return £2,525 in the first year. By the end of the decade, thanks to compounded growth, our investor would have a pot worth £81,833.
But many people would shy away from investing directly in companies. More cautious investors may prefer gilts and bonds. AJ Bell said these investments had typically returned 2.7pc over the past six decades. If this were to continue for 10 more years the investor would have £63,693.
Both scenarios assume stockbroker charges of 0.25pc are applied. In this example the case study had invested directly in companies; if they were to invest in funds then management charges would also have to be deducted.
Those looking to avoid risk altogether can keep their money in cash, but even the best savings accounts struggle to beat inflation. An account paying 0.6pc interest would grow £50,000 into just £53,082 over the 10 years, AJ Bell said.
Which is best?
The buy-to-let property offers the best returns overall in this analysis. The landlord would have made a profit of £54,106 from rent, plus a further £39,079 from the growth in the value of the property. This brings the total profit to £93,185.
Advertisement
By contrast, the best stock market scenario would return a profit of just £31,833.
Each of these scenarios looks at profits before tax. Both types of investor will potentially have to pay capital gains tax, as their assets will have risen in value. They will also be liable for income tax on their income, and dividend tax if the shares have paid out to investors.
The stock market investor could protect themselves from the taxman by using an Isa, but the investment would have to be spread over a number of years given the annual allowance is currently £20,000.
Landlords will also be forced to pay stamp duty at three percentage points above the standard rates, should they already own another home. For a property purchase of £190,000 this would mean a £7,000 bill, another cost for landlords to consider.
The best option depends on an individual's approach to investment. Maintaining a buy-to-let property requires significant amounts of time and effort: if something breaks it is the landlord’s responsibility to fix it and the standard of tenant can often be luck of the draw.
Advertisement
Investing in the stock market is a much more hands-off affair, but average returns are subsequently lower.
Related Topics
Buy to let, Shares
84
The Telegraph values your comments but kindly requests all posts are on topic, constructive and respectful. Please review our commenting policy.
84 comments
CS Advisor
Newest | Oldest | Top Comments
Jimi Hendrix
8 Sep 2021 6:33PM
Don't 'invest' in property. Property is a liability. Invest in shares. As a country we over invest in property. Enough. Buy shares and help boost the real economy.
Flag
2Like
Reply
Stuart Davies
8 Sep 2021 6:08PM
BTL expenses soon and regularly gobble up your gross profit.
Flag
Like
Reply
Jonathan Collard
8 Sep 2021 6:06PM
I’ve been an accidental landlord for 25 years…albeit I’ve intentionally added extra properties. To be honest it’s not a money making endeavour at all… more of a safe harbour in a mixed portfolio of investments. Tenants genuinely are a pain in the backside irrespective if they are professionals like accountants and lawyers or blue collar workers like hair dressers or mechanics. ( I’m no snob; left school at 16 as an apprentice). Unless you are doing this on an industrial scale with 30 or 50 plus properties then best avoid rentals. New tax rules are a killer and when you have your hand down a toilet retrieving yet another causally discarded tampon you’ll rue the day….. 🙄
Flag
2Like
Reply
Cavan Davidson
8 Sep 2021 5:54PM
Bad tenants, boiler replacements, agency fees, maintenance..... loads of extra costs in owning property.
Also, some very studenty towns and cities have areas where multi bedroom houses cannot simply be turned into homes in multiple occupation (HMOs)
Also, the house buyer in this instance is leveraged to nearly 3x equity.
Flag
2Like
Reply
Ford Prefect
8 Sep 2021 5:31PM
If you get a buy to let in a university town, you could collect on a uni student let, a rent of around £2,500 per month for ten months. I know that uni students trash the place, Been there, done that, but the parents will pay for damages. Uni students are often hard work but give tremendous returns.
Cash invested should be in an ISA and would be free of tax. Now that I have retreated from property ( I am 83), my money is in funds and showing a tax free return in excess of 20% so someone, possibly the columnist, needs to do more sums.
Flag
1Like
Reply
St John Quintrell
8 Sep 2021 5:15PM
What about maintenance costs and taxation?
And if comparing like with like, you would employ a property manager to deal with the ongoing letting and maintenance issues.
Flag
2Like
Reply
Big Mac
8 Sep 2021 5:13PM
The BTL also assumes someone won't trash the place or need to be evicted via the courts.
Flag
2Like
Reply
Steve Don
8 Sep 2021 5:32PM
Exactly, most landlords have at least one horror story if been doing it for 10 years.
Stocks and shares, comparatively are so much less hassle and stress.
Flag
3Like
Reply
Anthony Chambers
8 Sep 2021 4:57PM
Also, I cannot remember the last time HSBC called me up to ask for a new shower head because the other one is broken. No, they just happily credit my index tracker with a dividend.
Flag
4Like
Reply
Anthony Chambers
8 Sep 2021 4:51PM
This is a completely unfair comparison. You cannot compare a leveraged property with an unleveraged share. If you want a fair comparison, try comparing NASDAQ x3 index tracker with a 65% buy-to-let property. You will soon see that shares vastly outperform the housing market.
Flag
3Like
Reply
krys hazel
8 Sep 2021 4:18PM
Look at what paintings are going for at Sotheby's auctions. Buy something by an established artist (no need to actually like the work) and keep it for a few years.
Flag
1Like
Reply
Richard Burlton
8 Sep 2021 3:54PM
I expect better from the Telegraph; the BTL figures made no allowance for management fees, letting fees, property maintenance and regulatory compliance costs. There is also no warning that investing in a single property comes with the risk of a bad tenant who fails to pay the rent and costs a small fortune to evict.
Investing in the stock market is far more secure if you go for a diversified portfolio and the investment is far more liquid
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Anthony Chambers
8 Sep 2021 4:52PM
@Richard Burlton And they are comparing an investment with leverage against one without.
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William Rusbridge
8 Sep 2021 3:36PM
Think long and hard about a BTL. It can work if you have good tenants but the gearing is fairly horrendous.
If you have to put in a new bathroom or kitchen every few years then the 10% yield is soon reduced.
At least with a ftse company you can trade in seconds, its cheap and absolutely no hassle.
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Anthony Chambers
8 Sep 2021 4:53PM
@William Rusbridge If you want a better return based on leverage, there are FTSE x3 index trackers too.
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roger white
8 Sep 2021 3:22PM
BTL is - despite all the taxes & crackdowns - far the superior investment..& if invested in the best locations virtually guaranteed - while stocks & shares are far more liable to fluctuations in performance & ups as well as downs.
Faang stocks might be comparable.
The article is spot on.
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Paul Wilson
8 Sep 2021 4:48PM
@roger white Stocks, while volatile in the short term, ALWAYS rise in the long term. That is, as long as you invest in index-linked funds. You are on your own if you invest in individual shares.
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N Tobin
8 Sep 2021 3:01PM
Give me shares any day.
I can dump them tomorrow and move the money anywhere In the world if an idiot like Corbyn or Starmer were foolishly elected.
They can also be protected in ISAs
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Steve Willis
8 Sep 2021 2:58PM
Equities win hands down. No work. Ignoring the idiocy of comparing leverage
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Norman Brown
8 Sep 2021 2:22PM
This analysis is deeply flawed. You compare a leverage investment in property with an unleveraged investment in shares. Leverage hugely increases risk. Like for like will show the stockmarket investment offers a far higher return - and, if you wish to avoid leverage, you can't do the property with only £50k.
Plus the journalist doesn't mention tax. There's no tax relief available on your property investment, whereas you should, within 3 or so years, get your shares into an ISA, giving you tax free returns.
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Mike Isaacs
8 Sep 2021 1:41PM
If you’ve only got 50k to spare, I wouldn’t bother. You could easily lose the lot if it’s used as front money.
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john brown
8 Sep 2021 1:21PM
property is a good bet but so often the bet is hampered by unforeseen issues-
No mention of all the regulation checks required..HMO licence, if it’s more than 2 people, smoke alarms and PAT equipment checks.
Then there is the likely changes in tenants protections- possibly the worst being rent controls and sitting tenants.
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Nigel Masters
8 Sep 2021 12:48PM
If the investment is made into equities then a small amount, possibly within the tax free exemptions may be sold every year, also a transfer could be made to a spouse utilising their yearly exemption, again avoiding tax.
If the investment is a buy to let everything has to be sold at once thereby ensuring that most of the capital profit is taxable.
It should also be remembered that disposing of property can take some time unlike equities which have a known value on sale date with proceeds due on a set date.
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Geoff Willis
8 Sep 2021 12:15PM
The example uses leverage on the BTL side. A fair comparison would use margin to buy the stocks, although you can't borrow as much as with a mortgage.
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J Clark
8 Sep 2021 12:12PM
Unclear why buy-to-rob was exempted from the new social care 'levy' of 1.25%.
If it's good enough for dividend income, it's good enough for parasitic intermediaries tying up scare property that would be better occupied by owners.
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Joseph Ridout
8 Sep 2021 12:31PM
It's already taxed at very high levels.
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Steven Rose
8 Sep 2021 2:38PM
@J Clark
Income from btl is taxed, including NI, so it will be covered.
Besides, who wants to live in "scare property"? It sounds frightful!
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Stuart Davies
8 Sep 2021 6:15PM
@J Clark I think BTL profits fall into income tax category & rates.
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Russell Thornley
8 Sep 2021 11:46AM
You can of course minimize your involvement in managing/maintaining a BTL by getting an agent to manage the property, but that eats into your profit (choose your agent carefully - they are often in cahoots with their panel of electricians/plumbers/
Another thing to consider with BTL is the ever changing regulation environment - and this is going to get worse over the next few years. Energy performance of properties is going to get much tougher and it is proposed that all BTLs will need to have an EPC of a 'B' or higher by 2028/2030. This is going to impose big costs of insulation, heat pumps, glazing replacements etc on landlords. We will see even more small LLs exit the BTL market as these changes begin to bite. Rents are going to go UP.
One thing I will say after being a BTL landlord for 24 years, if you want an easy/less stressful life - BTL is Not for you. 10/15 years ago it was, but not any more.
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John Cutmore
8 Sep 2021 12:12PM
Yes agree with all of this above. I used to be Hands on but have now moved away so my properties are with an agent which is cutting around 20% off profit even with a commission rate at 8.5%.
I generally decorated properties myself as would generally cost 2k a pop for 2 coats in a 2 bed property. I could knock this out in a week or so myself.
I have certainly considered selling all and reinvesting into property let’s or something else.
Answering someone else’s comment about not using finance. With credit so cheap in the last 10 years it would have been silly not to use it even with the tax changes to interest. This can be negated by maxing pension contributions.
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ross denholm
8 Sep 2021 11:45AM
The property example ignores the cost of maintenance, roof repairs, boilers, garden maintenance etc.
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Gary Cole
8 Sep 2021 1:05PM
@ross denholm And needing to reach EPC C by 2027...
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Runtime VIA
8 Sep 2021 11:45AM
Tell me where I can buy a flat for £50k that will see a 8%+ return and I'll get in touch with the local agents now.
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Ned Ryerson
8 Sep 2021 11:53AM
@Runtime VIA
You didn’t read the article properly.
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Runtime VIA
8 Sep 2021 11:55AM
@Ned Ryerson 0/10 for that godawful reply. Explain why, in an article that talks about buy-to-let, did I misunderstand the central point that investing £50k means I need to acquire a property to let that will make a profit???
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Joseph Ridout
8 Sep 2021 12:32PM
Heard of a mortgage?
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Ben Chater
8 Sep 2021 11:34AM
I’d agree with this article. Returns in B2L mentioned here mirror the returns I have made over the past 5 years on 3 flats I have purchased. This article doesn’t factor in maintenance costs. I’d allow 10-15% per year
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robert storey
8 Sep 2021 11:19AM
Stocks. The UK stock market is undervalued. Hardly risen at all in 20 years so plenty of upside but with a rising yield. The ftse100 is big safe global mega corps.
Property is incredibly vunerable to any kind of economic shock especially interest rate rises. Bank of England thinks 1% rise in rates would cause 20% fall in value.
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Joseph Ridout
8 Sep 2021 11:32AM
Whilst I agree with your headline answer of "stocks", the FTSE100" is full of junk.
There's what ... 5 investable companies in it
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JP Law
8 Sep 2021 3:14PM
@Joseph Ridout
There are the FTSE 250 plus AIM plus there are 20,000 retail investment funds, investing in a huge range of assets, available in the UK. Plus overseas shares.
Plenty of options.
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Anne Burke
8 Sep 2021 11:12AM
Thé major différence is in the assets liquidity. If you need the money for an unexpected crisis or similar then stocks are easily sold, with property you cannot sell off the back bedroom. The whole investment needs to be sold with the consequent costs.
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Comment Now
8 Sep 2021 11:12AM
In the UK we seem to prefer investing in anything rather than in the stock market. In the US, it seems that the stock market is the default place to go. The US approach makes more sense in the long term.
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Philip Cook
8 Sep 2021 11:08AM
If you’d invested 50000 in quant back in February this year, your portfolio would be roughly 375000
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David Glover
8 Sep 2021 10:57AM
A house purchase is a leveraged bet. You put 50k down and take on 200k of asset.
Unless selecting less common financial instruments, the stock market is not.
If both markets drop 50% you lose 25k if in stocks and 100k if in housing. I.e you have 25k left if in stocks and you own nothing and owe someone 50k if in housing.
The risk factors between the two are clouded by recent history.
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robert storey
8 Sep 2021 11:24AM
@David Glover people think property only goes up in value because they think government policy deliberately makes that the case. In fact the policies that have kept house prices high were to stop unemployment rising and to help banks recover from 2008.
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Steven Rose
8 Sep 2021 11:56AM
@David Glover
"A house purchase is a leveraged bet."
It is in the example chosen, but not if you had £100,000 and chose property in a cheaper location.
But as an example of how leveraging can work to your advantage, 10 years ago we borrowed £50k against our own house and bought a dilapidated place as a btl outright. We paid off the loan, from the rent, after 8 years so now the majority of the rent is profit. Meanwhile the property has trebled in value.
Our initial investment? Zero.
Now that's what I call a return!
Finally, shares halved briefly in the 2007 crash, but when has property ever done the same? Especially over a ten year period.
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Hugo Davies
8 Sep 2021 10:52AM
Passive tracker funds?
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Oliver Murphy
8 Sep 2021 10:42AM
Interest only mortgage for 10 years?
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Mark Vaughan
8 Sep 2021 10:31AM
No allowance is mentioned for the expenses incurred on rentals, landlord insurance, annual gas safety checks if applicable, repairs etc which can eat into overall annual income
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Nick Smith
8 Sep 2021 10:23AM
Talk about apples and pears.
How about subtracting a notional annual salary from the time and effort needed to look after the properties?
You know, the one you could actually be earning elsewhere while your stock market investments look after themselves?
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