Investing VS Property
Discussion
Been mulling this one over.
Hypothetically say you have 100k/200k/300k. Want to retain some of that in case of life changes etc and its all in an ISA.
Returns are OK - lets say somewhere between 8-12% (based on some of the S&P performance in Vanguard).
In todays age if you were to purchase a home and rent it out or Air BnB it. Whats more likely to return in the long run.
This assumes you dont own a property but want to perhaps add it to your portfolio.
In my mind (forgetting lost rent)....
ISA returns are tax free - so 10% of 100k is 10k clean - no income tax or capital gains to worry about
Flip side it could drop in the short term if you invest unwisely
House purchase is more stable investment, its unlikely to fall much. You can get income - letting/AirBnB
Flip side is maintenance, CGT, periods where its empty and also higher mortgage payments - followed by income tax after any offsets
Thinking out loud here but over 10 yrs - it does seem an ISA is a riskier approach, but avoids alot of pitfalls.
Note - in pure financial terms I do realise the cost of renting is a sunk cost, so the scenario might be living with partner or cheap relatives rent etc
Hypothetically say you have 100k/200k/300k. Want to retain some of that in case of life changes etc and its all in an ISA.
Returns are OK - lets say somewhere between 8-12% (based on some of the S&P performance in Vanguard).
In todays age if you were to purchase a home and rent it out or Air BnB it. Whats more likely to return in the long run.
This assumes you dont own a property but want to perhaps add it to your portfolio.
In my mind (forgetting lost rent)....
ISA returns are tax free - so 10% of 100k is 10k clean - no income tax or capital gains to worry about
Flip side it could drop in the short term if you invest unwisely
House purchase is more stable investment, its unlikely to fall much. You can get income - letting/AirBnB
Flip side is maintenance, CGT, periods where its empty and also higher mortgage payments - followed by income tax after any offsets
Thinking out loud here but over 10 yrs - it does seem an ISA is a riskier approach, but avoids alot of pitfalls.
Note - in pure financial terms I do realise the cost of renting is a sunk cost, so the scenario might be living with partner or cheap relatives rent etc
For your example I am assuming no gearing hence you are buying a property outright for the £100k - £300k
Generally the cheaper the property the higher the rental return and I would assume a gross return of around 6% - 7% for a house at £150k and as you say you have costs to pay out of that and occasionally some major costs (refurb bathroom/kitchen/new boiler etc)
I would assume over a 10 year period (doing most of your own maintenance and not paying an agent to run the place) your costs would probably average £1,500 per year hence net (before tax) of circa 5% - 6% - tax will make quite a difference
So to beat the S&P500 (assuming this produces around 10% PA compounded on £150k) gives a projected final lump sum of £402,759 hence you will need quite a bump in house prices to beat that
As ever with these projections it is all assumptions as housing could shoot up or stay flat and the S&P could go nowhere but it is a lot easier/quicker and cheaper pressing a computer key to sell the S&P than it is to get a house sold.
My experience is that when you come to sell a long term rental you end up either selling it cheaply or spend a serious amount of money making it desirable to a first time buyer.
Good luck
Generally the cheaper the property the higher the rental return and I would assume a gross return of around 6% - 7% for a house at £150k and as you say you have costs to pay out of that and occasionally some major costs (refurb bathroom/kitchen/new boiler etc)
I would assume over a 10 year period (doing most of your own maintenance and not paying an agent to run the place) your costs would probably average £1,500 per year hence net (before tax) of circa 5% - 6% - tax will make quite a difference
So to beat the S&P500 (assuming this produces around 10% PA compounded on £150k) gives a projected final lump sum of £402,759 hence you will need quite a bump in house prices to beat that
As ever with these projections it is all assumptions as housing could shoot up or stay flat and the S&P could go nowhere but it is a lot easier/quicker and cheaper pressing a computer key to sell the S&P than it is to get a house sold.
My experience is that when you come to sell a long term rental you end up either selling it cheaply or spend a serious amount of money making it desirable to a first time buyer.
Good luck
halo34 said:
ISA returns ......Flip side it could drop in the short term if you invest unwisely
House purchase is more stable investment, its unlikely to fall much.
I'm not sure those assertions standup to scrutiny even if it might feel like it is true - I think the actual performance over the last 10 years actually tells you that the complete opposite is actually the case House purchase is more stable investment, its unlikely to fall much.
i.e. Go look at the graph of the average house prices corrected for inflation and you'll discover that houses have not yet got back to 2008 levels (when corrected for inflation).
Whereas stocks have beaten inflation over that same time period and made far better returns (completely tax free as well!)
i.e. If you had the decision to buy a property back in 2008, you'd have been better to put the same money into a S&S ISA over that time (no doubt).
Add the fact that you wouldn't have had the risk of bad tenants, potential big costs, tax to pay on any property gains etc, and I don't think the view of property > ISA holds any truth whatsoever!
While bricks and mortar "feels" like the safe option, the data says the opposite (imho)
I think the common response is that you're likely already heavily exposed to the property market if you own a house you live in, doubling down on that with everything you own probably isn't all that wise. Factor then taxation, CGT on gains, non payers, legislation being a political weapon (as is ISA perhaps, but less so, dirty BTL'ers etc) it doesn't sound that appealing to me.
In Autumn 2021 I invested £1.6M
£.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
£.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
Edited by Portia5 on Tuesday 23 January 17:54
Portia5 said:
In Autumn 2021 I invested £1.6M
£.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
No big surprise there, S&S are a minimum of 5-10 yr investment, not 2 1/2 years £.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
Edited by Portia5 on Tuesday 23 January 17:54
Edited by YouWhat on Tuesday 23 January 18:23
Portia5 said:
In Autumn 2021 I invested £1.6M
£.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
My real world experience has been similar. £.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
Edited by Portia5 on Tuesday 23 January 17:54
Stocks don't seem to have done much since I lumped in between 2018-2020, whereas property is well up, rents are up and demand is ferocious.
I haven't been perfect with stocks - a little tweaking around the edges and selling low - but all stock investors are exposed to their own psychologically. I've generally left it alone in indexes and it still hasn't blown me away.
My head tells me that stocks are a much better proposition, but my real world experience is telling me that the numbers have been better on property and it causes me far less stress - a few emails per month vs stock market volatility.
If a lump sum landed in my lap today I would buy another property I think.
Edited by muscatdxb on Tuesday 23 January 18:31
Edited by muscatdxb on Tuesday 23 January 18:32
muscatdxb said:
My real world experience has been similar.
Stocks don't seem to have done much since I lumped in between 2018-2020, whereas property is well up, rents are up and demand is ferocious.
I haven't been perfect with stocks - a little tweaking around the edges and selling low - but all stock investors are exposed to their own psychologically. I've generally left it alone in indexes and it still hasn't blown me away.
My head tells me that stocks are a much better proposition, but my real world experience is telling me that the numbers have been better on property and it causes me far less stress - a few emails per month vs stock market volatility.
If a lump sum landed in my lap today I would buy another property I think.
So you would rather risk your cash on a single property in a town in the UK, rather than invest in a global index tracker that invest in several thousand business around the world. Sounds extremely risky to me. Stocks don't seem to have done much since I lumped in between 2018-2020, whereas property is well up, rents are up and demand is ferocious.
I haven't been perfect with stocks - a little tweaking around the edges and selling low - but all stock investors are exposed to their own psychologically. I've generally left it alone in indexes and it still hasn't blown me away.
My head tells me that stocks are a much better proposition, but my real world experience is telling me that the numbers have been better on property and it causes me far less stress - a few emails per month vs stock market volatility.
If a lump sum landed in my lap today I would buy another property I think.
Edited by muscatdxb on Tuesday 23 January 18:31
Edited by muscatdxb on Tuesday 23 January 18:32
Portia5 said:
......and aren't for people who don't like volatility, or chasing losses and have enough years left to wait for hopeful recoveries etc etc etc
Sounds like you sold before the upturn at the end of 2023. Too little time invested. There's literally decades of historical proof that after five years it's very rare to still be sitting on a loss and at ten years you're sitting on some healthy gains.
Property is hassle and you can't sell a bit of a bathroom if you need some cash unexpectedly.
The flip side is properly generally isn't at the mercy of daily valuations by people who can be full of optimism one day and a manic depressive the next day.
There are also lots of different ways to invest which isn't always the impression you'd come away with from here.
The flip side is properly generally isn't at the mercy of daily valuations by people who can be full of optimism one day and a manic depressive the next day.
There are also lots of different ways to invest which isn't always the impression you'd come away with from here.
Portia5 said:
In Autumn 2021 I invested £1.6M
£.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
Global equities are up 12% since September 21, 14% since October 21, 10% since November 21 (depending on what you mean by Autumn).£.5M with Vanguard funds , £.5M with IM funds, 2 x ISAs, plus £50k in premium bonds and £4k in crypto.
After 2 years Vanguard had grown by £4.5k, IM had shrunk by 27k, the PBs had earned about 1.5k and the crypto was worth £2.5k
The properties .5M bought had earned about £100k and gained about 75k in value in the same period.
The crypto, PB, Vanguard and IM investments have now been liquidated apart from 2 x ISAs, and the proceeds reinvested (not in property) and I'm happy to report are rapidly recovering the losses.
The losses made were offset against gains made from selling property.
The funds investments in GIAs wont be getting repeated. Ever.
Edited by Portia5 on Tuesday 23 January 17:54
It sounds as if you made bad investment choices perhaps?
i'd suggest that ISA is the way forward:
especially if it happened to be a flexible one, where you can access some/all of the money and put it back in during the same financial year without affecting your tax free wrapper.
had a rental property in the past; And never again ( unless rules/regs change ).
Tax/CGT....
over a PERIOD of time S&P (not 2021 to 2022) and with compounding the ISA will do v.nicely (12%+ p/annum)
200k compounded at 12% for 10 yrs = 660k....TAX FREE
I think the new rules allow for a split in terms of whats held in them? so could do a cple of diff trackers to follow the higher growth companies or pick a basket yourself and let them do their thing for the next 10 years alongside a more generic fund.
especially if it happened to be a flexible one, where you can access some/all of the money and put it back in during the same financial year without affecting your tax free wrapper.
had a rental property in the past; And never again ( unless rules/regs change ).
Tax/CGT....
over a PERIOD of time S&P (not 2021 to 2022) and with compounding the ISA will do v.nicely (12%+ p/annum)
200k compounded at 12% for 10 yrs = 660k....TAX FREE
I think the new rules allow for a split in terms of whats held in them? so could do a cple of diff trackers to follow the higher growth companies or pick a basket yourself and let them do their thing for the next 10 years alongside a more generic fund.
muscatdxb said:
Stocks don't seem to have done much since I lumped in between 2018-2020, whereas property is well up, rents are up and demand is ferocious.
I've generally left it alone in indexes and it still hasn't blown me away.
My head tells me that stocks are a much better proposition, but my real world experience is telling me that the numbers have been better on property and it causes me far less stress - a few emails per month vs stock market volatility.
What indexes have you been investing in to not see much return since 2018? Here's the global index;I've generally left it alone in indexes and it still hasn't blown me away.
My head tells me that stocks are a much better proposition, but my real world experience is telling me that the numbers have been better on property and it causes me far less stress - a few emails per month vs stock market volatility.
And tax. Property is horribly taxed. Stamp duty, income tax that you can't set finance costs off against in full, and CGT on gains at a higher rate.
Sure investments are taxed too - but you can wrap them in an ISA.
I'd max out ISA investment first, and then do property with surplus.
My ISA is my primary long term investment vehicle. I have had it for over 20 years and gains in that period have way outstripped the London flat I have owned since 2004. And of course, dividends from ISA stocks are just reinvested, again, sheltering them from tax, as I use accumulation funds. Whereas rent from the tenants is taxed at highest rate.
Flat is kept as I intend to hand it to the kids one day, as a roof over their heads in the capital, or indeed a source of income if they wish to not live here. It's not really an investment, more a functional legacy for them, hopefully 7 years before I die, so IHT free.
Sure investments are taxed too - but you can wrap them in an ISA.
I'd max out ISA investment first, and then do property with surplus.
My ISA is my primary long term investment vehicle. I have had it for over 20 years and gains in that period have way outstripped the London flat I have owned since 2004. And of course, dividends from ISA stocks are just reinvested, again, sheltering them from tax, as I use accumulation funds. Whereas rent from the tenants is taxed at highest rate.
Flat is kept as I intend to hand it to the kids one day, as a roof over their heads in the capital, or indeed a source of income if they wish to not live here. It's not really an investment, more a functional legacy for them, hopefully 7 years before I die, so IHT free.
Edited by Harry Flashman on Tuesday 23 January 19:40
PistonHead007 said:
Sounds like you sold before the upturn at the end of 2023. Too little time invested. There's literally decades of historical proof that after five years it's very rare to still be sitting on a loss and at ten years you're sitting on some healthy gains.
Have you ever seen a longterm chart showing returns from equities versus returns from property that includes both CG AND rent?
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