Why property investing doesn’t pay its way

Houses are expensive.

But they’re still a fantastically popular investment. Data published yesterday says that the number of houses sold last year was the highest since 2007.

And yet another story doing the rounds yesterday from the Council for Mortgage Lenders told us that mortgage lending is still in a slump – and I mean serious slump. Consider that in 2007 the banks were lending (or should I say creating!) £350bn a year to pump into the market. But over the last few years lending has fallen off a cliff.

It’s down to less than half its peak value, at around £150bn last year.

So where’s all the money coming from to buy these properties?

Who’s buying up properties?

I propose that it’s coming from nervous investors. Investors that are fed up with a stock market that’s not sure of where it’s going. A stock market that shows no consistency and a financial industry that’s full of thieving incompetents.

Just last week, I was chatting to an old mate. He wondered why he shouldn’t just go out and buy another property to let out. Indeed, figures from the Association of Residential Letting Agents (ARLA) say that, over the last year, the average landlord’s portfolio has risen from seven to eight properties.

Well, I proposed one good reason why it wasn’t such a great idea. And that is if you look at it from an investment perspective, houses are just not good value – you’re better off in stocks.

Let’s compare houses with stocks

The sort of house my mate is looking at will bring in a gross yield of about 5%. That is, a £400,000 house brings in £20,000 per annum in rent.

But with his marginal tax rate at about 40%, for him the net income is more like £12,000. That puts the house on a price/earnings ratio of 33 times! Yes, a price earnings ratio is calculated after tax. And corporations have a much better deal than your average landlord when it comes to paying its dues.

Of course, you’ll have to pay income tax on stock dividends too. But in many cases this can be whittled down by diligent use of tax shelters. In particular Isas and Sipps. As we know all too well, an accountant can find other wheezes too!

Now, my rule of thumb is that an investment is cheap if it’s trading at less than ten times earnings. Historically, the average is something like 14 times and anything towards the 20s starts to look expensive. If something is over 30 times, then there’s got to be some compelling growth story if I’m to be a buyer!

Today the FTSE 100 trades at around 12 times earnings. Many decent international companies can be found hovering on multiples of around eight times.

From a pure earnings perspective, stocks come out on top. But there’s more to this discussion…

The holy grail of investing

I guess one of the issues with stocks is that they don’t pay out all of the income they earn. Typically, a stock pays half as a dividend and keeps the other half for investment purposes. In technical terms, this is known as dividend cover… the FTSE 100 has an average dividend cover of two times. One half stays in the company and the other half pays the dividend.

To the uninitiated, this is why stock dividends probably don’t appear as appealing as rental income. They forget that the dividend you see is only half the story. Half the money is typically reinvested for growth. Now, going back to tax issues, it’s another feather in the cap for stocks.

You see, if the profits are channelled into growth and increasing the share price, rather than a dividend, then you’ll end up with a capital gain. And every year you can cash in up to £10,600 in capital gains tax free!

Of course, whether retained earnings are profitably deployed and achieve a rising share price is another issue.
I guess that’s the holy grail of investing. Finding businesses that make good earnings, and use retained earnings to consistently increase profits. My favourite firms are using retained earnings to invest in emerging markets, or expanding production of key commodities.

Now consider the growth potential for all that cash sitting in bricks and mortar. Not much room for profitable expansion there! Yes, rent increases have been keeping up with inflation – but I can’t get too excited about that.

It’s all about buying cheap

But don’t get me wrong – I totally accept that rental income has good visibility. That is, rents tend to be pretty consistent. Investing in a company is more of a gamble. During a downturn a company’s profits can disappear altogether.

But at today’s prices, is this (relatively) safe income stream really worth the money the landlord is paying for his investment?

In my opinion, putting your money into stocks is likely to produce better long-term returns and it’s certainly a lot less hassle.

Yes, houses have been a fantastic investment over recent decades. And yes, stock-market returns have been mixed. But past returns are no guide to the future. A more sensible guide to future returns is whether you’re buying cheap or expensive. Today houses are expensive and stocks are, well… about right.

I’d love to hear your opinion on this. You can leave your comments below.

• This article is taken from the free investment email The Right side. Sign up to The Right Side here.

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  • Ben Turner

    People in finance often overlook a very important variable regarding investment in property.


    Unlike stocks you have the ability to affect the PE ratio by making informed decisions that add value. Namely, picking an upcoming area and having a relationship with skilled, trust worthy and cheap trades people to develop a property can drastically improve rental income and sell on value.


    • John Wilson

      Totally agree Ben.

      Also, people don’t realise that there are creative ways that — when used responsibly — allow you to profit from property without investing massive deposits or even having to get a mortgage.


    • Timusathem

      ‘Unlike stocks you have the ability to affect the PE ratio by making informed decisions that add value.” Wrong.

      That skill exists in ALL investment markets. And it is rare in all markets. Those promoting property claim that everyone in property can add value easily- assuming that was true, it would be reflected in the purchase price already.

  • NP

    Interesting article but it overlooks the fact that you can use leverage with property investments (i.e. get a mortgage) and not be subject to extreme volatility as sometimes seen in equity markets. If the property market falls then you’re not forced to sell it (assuming you’re holding the property for the long term and it’s rented out).

    You can also use leverage in equity markets (CFD and spreadbet) but may have to fund margin calls during downturns.

    • Timusathem

      Agreed. But leverage is a double edged sword, and though yes you don’t feel margin calls as regularly as in stock markets, you DO feel them:
      1) ask the buyers who bought off plan in 2007 and went bankrupt when 18 months later on possession they were left with a crystallization of 75% loss on equity.
      2) if you are refinancing a house that has a negative equity, you will have to inject more equity or face high borrowing costs.

      Let’s please state both sides of the coin.

  • Asif

    Problem is, I don’t know anything about investing in the stock market.

    Houses are easy, secure, and trouble free. They are just not appreciating right now, but they will.

    If I had stocks and shares for pure investment purposes, outside of things like my pension funds, I would feel the need to watch them almost every day. I don’t need to do that with a house.

    I would measure anything in terms of the Return On Energy Employed and Share dealing reminds me of why I don’t go to Casinos!

    • Timusathem

      Read up Warren Buffett’s thoughts on stock investing for ordinary people. If you are sensible about returns you expect, it is not that complex, you just have to avoid completely the lure of higher returns and simply invest in tracker funds, that just follow the broad market. And, like you do in property, once you invest you forget about it and let it compound.

  • David Garner

    I agree with Ben Turner – expertise is key.
    I also agree with Bengt, profits are made at the acquisition stage, whether buying stocks – as is the clear leaning of the Author, or whether buying property.
    It is in fact quite possible to source investment properties at a substantial discount to todays value in a number of markets given access to the right contacts.
    Thus ‘buying right’ has an impact on yield and the example given in this article are restrictive at best. Consider buying a property at £70,000 (a 30% discount to valuation), that generates £675 p.m. in gross rents. Even after costs of £150 p.m. that leaves a Net yield of 9% plus the £30,000 of ‘on-paper’ equity inherent to the transaction.
    Of course the Author is correct, time and expertise are required in order to source and manage property investments of this nature, but one should at least ackonwledge the exisitence or possibility of such deals rather than simply use the poor example quoted.

  • Paul Dobbs

    As a complete novice/amateur investor who in the past has had buy to let (I don’t now) and had shares (I don’t now), the big question is where do I put my money? Its hard to see the upside for property given the government has effectively put the property market on a life support system in intensive care(via low interest rates, quantative easing) and despite all this intervention we are still only seeing the odd random eye movement from the market. Equally, where do I place my bets in terms of equities? Do I keep everything in cash? Do I just spend it? At least I can drive up to my house/flat and stroke/touch it at my leisure which is more than I can say for other investmenst given the realistic threat of financial meltdown – on this basis alone I’d go for property, it will always be there.

  • Drakey

    All very well, but most buy to let investments are bought at a discount and the difference between price paid and valuation becomes a “deposit” effectively giving instant equity. The mortgage is serviced out of the rental income and after other charges all is pure profit with virtually no money down. Your argument holds water if the purchase price has been paid. The P/E ratios are totally different.

  • Paul

    A property is never rented out 100% of the time. If you borrow money to buy it, you have to pay it and interest back.
    You also have to cost of upkeep. Windows, kitchens, bathrooms, and general painting all have a cost. As insurance.
    When selling it you have to pay tax on the increase in value, as it’s not your domicile residence.
    You also have to go to the bother of collecting rent, or pay an acency to do it.

  • Paul G Salter

    Hi, Do not touch “Buy to Let” with a 50 foot Barge Pole. Too many bad Tennants and worse too many who will trash and steal all your “Fixtures and Fixings”.
    Just buy chaep, “renovate, extend, add a bedroom or demolish and make 2 new Homes”!
    Business Warrior.
    Self made Property Tycoon.
    Author of “Attacked and left for dead”
    Amazon top 50 “Banking and Stock Market History”,
    Paul G Salter.

  • Londoninvestor

    What about the capital gain on houses? That has been pretty steady and good over the past few years. Why should that not continue, especially as inflation rises (as predicted by Moneyweek)?

    That said, I agree that there are big problems with UK housing. One reason why we are in such a mess is that an average person has been able to borrow half a million pounds from an irresponsible bank to buy a leveraged investment in a house but the bank would not even lend a few thousand to invest in shares.

  • Graham Wadsworth

    I agree with you Bengt. The problem with property is that you cannot just buy it, rent it out and forget about it. Your tenant might leave and you have a period with no income whilst you find another one. Then you have the problem of maintenance. Both of which reduce your yield. That is without the tenants from hell who trash the place and leave. More importantly, all your eggs are in one basket with property. With the capital you have tied up in one house, you could build a nice portfolio of income shares. Stick those in an ISA and you have a nice little earner.

  • MindaH

    With stocks and shares I can sell for cash at the click of a button. Not so with property which is difficult and expensive to sell. The volatility of stocks and shares is a plus in my view. Over the long term they appreciate in value and you can choose the right moment to buy and sell.

  • Brian Darby

    It depends on what you buy- the example given of 400K
    is clearly London with a rent of 20K per annum. That is a 5% return-but London is NOT the rest of the UK. It is quite possible to buy a house for a fifth of 400K and get a return of
    6-7% yield and (hopefully) if the property is in good order you will possible get an increase in value of 4-5% on top PER YEAR.

    Add 7% PLUS 5% which is better bet- stocks or bricks?

    I have a few properties-10 years ago a bungalow cost
    £25,000 it is now worth £100000 and the £400 per month
    with the same tenant means total rental is £40,000 over ten years.

    That is a total in real terms of about £80K or £8K a year. Not bad for an investment of £25K !!




  • market guru

    Some good comments here. Bengt, the average retail investor in shares is fed up with the cards being stacked against him. The advent of algo trading means that more then 50% of turnover is just gambling and not a genuine investment. With the expected hyperinflation coming some time around 2020, now is a very good time to get into property.

  • Elisabeth

    stels etc. The ror has recently decreased
    but still looks like a pretty good risk/reward return.
    Or have I missed a Right Side article about this?


    If like me you are investing for pension income then monthly rental income is very handy. Having said that in mid-2011 we decided to diversify into shares, rather than buying more BTL properties. We have invested primarily in equity income investment trusts as tipped in Money Week, plus 20 or so higher yielding individual shares, and this portfolio has done very well, but I do sleep better with bricks & mortar!

  • Ponzischemeagain

    Ben, Why on earth would you wish to compare mortgage lending pre 2008 with today.You and everybody else should be fighting never to see those levels ever return. Banks made themselves billions through MBS, CDOs and all leveraged to the skies simply to create a ponzi scheme in housing which the taxpayer and every saver is paying for now. It was corrupt, criminal and wholly destructive. Using house prices as a measure of wealth is what is all wrong for all economies. Have you learnt nothing from 2008? Apparently not. Beat the drum for wealth creation through productive means not through criminal, corrupt ponzi schemes for bankers please.

  • CapnSlog

    Good debate, but one problem is not addressed… the IMF regard UK house prices as 30% overvalued, but what do they know! Other opinions are only 20%. This somewhat messes up P/E ratios, unless you buy at the (new) discounted prices. There is also the knock-on effect that lower house prices would entice more (first-time) buyers into the market, and reduce rental demand, and the crisis with bank foreclosures. Fortunately, the property market will always recover… USA 28 years (1930-1958) and Japan (1988-??) Don’t hold your breath…..

  • Paul Graves

    Your article is spot on,only in the last month an opportunity to buy another property came up and I thought about it in the light of not only return on capital but also the hassle factor.
    Buying property on a buy to let may make sence as you cannot buy stocks with a buy to let, so after doing the sums, good solid companies paying regular divys win out in the overall analysis….But just as important Shares dont make phone calls on a cold winters night telling you “The Central Heatings Gone Off”

  • Ian Watson

    A few more points . . .
    1. You can’t sell just a bedroom if you need some quick cash . . . but you can sell a few shares . . . .
    2. Ratio : average house price to average income is around 6, long term average around 4 . . . ergo, property is 50% overvalued . . . ?
    3. Shares and property are supposedly not correlated, so a mix of both is best so you can sell out at the top of the cycle . . . eggs and baskets !

  • RP Brum

    Bank robbers rob banks because that’s where the money is…..It will not have gone unnoticed by the Tax Man that £Billions of worth of our wealthy ageing population’s money is now tied up in private multiple property rental portfolios. The Tax Man will come calling very soon and the general public will have no sympathy so he won’t mess about with 1 or 2% here and there – it will be gruesome. For this reason alone I would avoid getting in to this space – it’s been a good run, but its days are numbered. Overall disincentivising this form of investment will be good for society – so bring on the pain HMRC!

  • Chris

    Great article Bengt. I think as a longer term play property is a great investment if you can leverage most of it and then effectively have the tenants pay for this. A the end if the mortgage term you hav a nice asset for retirement either as an income stream or a capital sum on sale to invest in an annuity say. This is the attraction of property ; small capital outlay for a deposit and hopefully sit back without too many problems. Your current capital can then be invested in the markets and as Bengt says the reinvested income can grow the company and you also have the option of reinvesting your dividends to accumulate more stock. Stocks are much more liquid also I.e you can pull your cash out quickly and cheaply and look for another investment. You can’t do that with a property hence the long term view.

  • chris

    e than 5% closer to 5.5%

    3. Either rental prices rise or property prices rise. More buyers mean less renters and vice versa in a supply constrained market.

    4. Dividends are not guaranteed. BP, the Banks…..

    5. Aside from dividends, capital growth of the stock market is negative since 1999.

    A flawed analysis I’m afraid. If not a valiant attempt.


  • Michael

    An excellent article Bengt. We formerly had three properties and it was great as long as we didn’t mind unpredictable problems, lots of paperwork, over-exposure to a wide range of scary risks, and we had nothing better to do with our time. I’m convinced many buy-to-let investors simply do not accurately maintain records of their expenditure. So they’re not getting the returns they think they are. The stock market is a safer place, I think. But it could do with a mainstream TV show, to give it a less blokey image and bring some new money in.

  • Derek

    I agree that investing in property is not what it was. I bought a property back in 1999 and enjoyed many years of good rental returns and capital appreciation. As I have got older however I no longer want the hassle of the maintainence and call outs from tenants that are inevitable if you manage the property yourself. On selling the property I incurred a large CGT bill despite using all possible allowances, not being able to take advantage of the annual allowance each year.
    I would hesitate to advise anyone to get back into this market at the moment.

  • Ron

    Remember houses are 30 percent overvalued.
    We need to get back to 3 times salary .
    It is just a matter of time .8

  • Kiss

    Property has had a great run and many have benefited from rising prices, but all good things come to an end.
    The ftse has gone nowhere other than flat to down but it has paid a fair amount of dividends over that period, which few seem to ever focus on, i believe shares look a better bet for the next few years on valauation/yield. Buy a ftse tracker if your clueless and reinvest the divi’s to compound your returns you’ll beat most fund managers over ten years.
    Mean reversion is something to remember whatever you invest in.
    Gold was the dog of all investments for so long but has had a hell of a run in recent years to even things up.

  • g

    Hello Bengt,

    Thanks for the wonderful article. But I would just like to take your opinion about buying a house for living and not renting (I.e. a first time buyer buying for his living). Do you still think buying a house is not a good idea in this situation? I have never seen any article about renting vs buying a house. Can you throw some light on this one as well? Thanks

  • martin

    Like all commentators you are quoting gross yields. The fact is that there are expenses to pay e.g. maintenance, ground rent, agents fees not to mention periods where you have no tenant in a property. So in my opinion even in a well run portfolio you can have expenses that run to about 20% of your income. After 40% tax you are left with less than a 3% return on nominal current day property prices.

    There are no fast bucks in this game.

  • John B – Shropshire

    I am a little surprised that criticism of property investing has appeared in an article in an investment newsletter. Perhaps I am a little biased (33 years an Architect) but as a property investor/Landlord with my Partner (former Estate Agent) we have in 2 years built a portfolio of 8 – 10 properties with a net monthly cash flow of £3K. Not too many people I know have added £36K income over the last 2 years. We are helping others to do the same and whilst there is a fee charged for our input the returns of 8 – 12% still shows a healthy profit. Our best example to date is a 3-bed semi bought for £45K, refurbished for £9K and rented out for £550pcm. It can and is being done by ordinary folk and property is not expensive at present it is cheap so now is a good time to build the capital growth for the future which will ultimately pay off any loans/mortgages and provide an even higher monthly cash flow averaging another £250pcm/property. Is this not a no-brainer?

  • David S

    John B of Shropshire says “property is not expensive at present it is cheap”! I always thought Shropshire was in England not on Mars! He also completely ignores the comments from others re.”tenants from hell”, voids, maintenance, hassle etc.etc. I like shares, I get a certificate and put it in a box, I look at the price occasionally and every so often I get a dividend! Nice!

  • Paul Bright

    House prices need to be no more than 3 times earnings, in other words they will collapse. Business that can STOP RISK will boom. Green, lifestyle businesses like stop risk. The UK=OK and you are welcome!

  • Paul F

    There are alot of people on here who know nothing about property investing.
    Tenants from hell…if you do proper due diligence and have homes of great quality you can get fantastic tenants. My experience is those who have bad tenants have attracted them with poor quality stock.
    People speak as though there aren’t bankers and corporate leaders from hell!
    Property wins for me every time. We have some great deals and ROIs of 30% plus!! You need to know what you are doing-true of anything in life. Get educated in something you are passionate about and you will get rich rewards

  • ChrisS

    How about buying foreign property? Florida perhaps?
    There must be some bargains in Spain/Canaries for holiday lettings at the moment?
    Turkey look cheap too.


  • JREwing

    All correct but irrelevant. The UK will have a currency event. When that happens, what will be the value of property in London even? Right now, London property commands a healthy premium over other parts of Britain. Why? Because London is a financial centre and is “seen” as a “safe haven” from the turmoil in the Eurozone. But London is not a country. It sits within the most highly indebted country that has ever existed in history. When the debt hits the fan, London will get sucked into the mire with the rest of the UK and with it, the premium on London property will disappear.

    If you own stocks in UK blue chips, is that better? May be. But the best thing you can do is get out of dodge. I certainly did.

    • JimBob

      I’m interested to know where you moved your money to. I’m in the first time buyer quandary: I earn way above the UK average, have enough for a deposit on a property to live in but intend on leaving the UK in 24 months high work. So, do I use my money and buy stocks and shares? Anywhere I’d be able to afford the conversion to a buy to let Mortgage on in 2 years isn’t somewhere I want to spend the next 2 years living in.

  • CommercialJohn

    Personally I think capital growth is highly over-rated. What most of us need is a stream of income. Property rental income and long-term dividends from shares can both provide this. The yield we get on either will mostly depend on how well we buy so timing is everything. I think it is best to have both but from my own perspective I have found commercial property much more attractive than residential. Commercial tenants stay longer (I have some with 25 year leases and one with a 60 year lease), pay promptly and they are typically responsible for all repairs/maintenance and even buildings insurance. And they don’t phone you up in the middle of the night! My net yield has never been less than 10% and such returns are still available now through most commercial auction websites e.g. Allsops.

  • genekkk

    Knowing a property market and knowing a bargain is a lot easier than knowing what a company decides to create as a profit or give away as higher bonuses to directors before paying shareholders or fund managers that are often glorified book keepers taking a huge slice of any wealth held regardless of performance . House prices based on income multiples is outdated when you have inherited wealth ( available to make purchase power greater ) and rental yields driving ability to finance purchases above basic 3 times income formula . Canaries is nice this times of year easy to buy not so easy to sell. ( mine bought from UK profits ) Re Capital Gians tax .. not payable if non resident ( but read new rules before jumping in on disposals or change of residency .

  • J button

    Given that central banks around the world are doing everything to stoke inflation through currency debasement I find it hard to believe that houses will be a good investment for a long time, as interest rates WILL rise and further than most people think. Debt servicing costs thus will rise significantly. Houses are mostly purchased using loans – i.e. debt. We already have reports that several million are having some form of difficulty with debt servicing. I can’t see this getting any better with wage growth so stagnant.

  • Gary

    I agree with Bengt one other aspect is the ability to mitigate capital gains into any given tax year by simply selling a portion of your shares. Houses have a capital tax gain which due to the nature of the investment can be quite large and difficult to avoid paying a capital gain on.

  • chris

    Fair points, particularly with regards to London property.
    However, most individual property ‘investors’ have little idea about share investing. Property generates more certain and tangible results (fact), hence its popularity. Then the ease they rent out in the London area attracts even more punters willing to accept low yields (although often unaware of the term itself!) and convinced the only way is up due to the impressive price resilience so far…

  • Phil

    Am I wrong in thinking that leverage provides you with a greater yield than outright ownership?

    Take a £160,000 house, in which you have tied up a £40,000 chunk of equity. Now let’s say you earn £500 PCM after expenses, £6,000 per year. £,6000/£160,000 = 3.75%, not great. But your investment is only £40,000 so isn’t the yield actually 6,000/40,000 = 15%? Not too shabby…

  • charlesdb

    Although I think property is a pain, for all the reasons mentioned, the fact is that in hyperinflationary Germany, only property and shares managed to come out of the mess with their values appropriately adjusted to the new prices.

    Assuming a future of hyperinflation therefore, the cost of housing now is irrelavent. High inflation will wipe out mortgage comittments and mortgages will adjust to the current wage inflation – and house prices will rise.

    Of course, today we have gold as a store of value; but who will be able to time the vicious downturn in price when the crisis subsides.

    It’s shares for me, but to discount property is to my mind… mindless.

  • optimus prime

    either were mad enough to invest in stock only not to read the fine print which indicate we may lose some if not all of our money. property is no safe haven either once we default on repayment. seriously if you dig deep its all about how much risk you are willing to take for that return if it ever materialise. To diversify may not seem to be a bad idea so why not invest both property, stock and diversify a few more time as a fail safe measure.

  • Yogi

    For the past fifteen years I have heard the hogwash about investing in shares, I have paid experts for that period manage a growth of a miserly 35% or 2.3% per annum over that period including the latest rebound that’s well below inflation and my investment now stands me at a loss close to 20% or £45K after all dividends reinvested. I contrast that with my property portfolio which has generated over 400% capital gain and a further 300% growth from rental income all reinvested my yield is 12% against current market values and over 70% against cost. I know people cleverer than me are getting 20% current yields. I suggest anyone looking to buy property records under the hammer to get an idea on real yields. No it is not easy making money never is then again shares are easy.

  • B_Relic

    It seems to me that Dominic Frisby, who has already commented on the book, has convinced Bengt to read Andrew Craig’s Own The World. This article reads pretty much like chapter 6!

  • Boris MacDonut

    We don’t know what the future holds. But the past can give an indication. In 1999 the FTSE was at 6000 and now it is at 6,200. I make that 3% in 14 years. It is also a skewed figure as the index regularly drops declining firms and replaces them with growing ones. The top 200.
    House prices in1999 were between£100,000 and £140,000 depending on which index you used, now they are at £170,000 to £225,000. I make that a 65% gain while shares languished.
    And you can’t live in a share portfolio!

  • Robert

    Boris MacDonut
    You state that in 1999 the FTSE was 6000 and it is now 6200 which represents a gain of 3% over 14 years. I have invested in share based investments over the last 21 years and one FTSE equity income fund which is by no means the best performer had a unit price of £1.75 in 1999 and it now has a unit price of £5.81 pence. This represents a gain of 232% over the same period and is tax free when invested in an ISA.
    This comfortably beats your return of 65% while shares “languished”
    Also consider that this type of investment can be accessed directly from disposable income unlike property which requires a mortgage unless you are fortunate enough to be able to make a house purchase outright. Any real returns from property investment therefore have to be in excess of the interest rate payable over the duration of the mortgage. Perhaps if house prices were not so expensive we could all afford to buy them and we have some spare money for other investments as well.

  • bengt

    Housing & HP’s always causes a stir – it’s great to read all the comments.

    Relic – though I’ve heard Dominic interview Andy Craig, I can assure you I haven’t read his book. These thoughts are my own! The inspiration for it – the figures from the CML (that said lending is in a slump) and on the same day publication of figures that say housing sales are on the up.

    Which brings me to the point I was making – that housing investment is coming from ‘cash’ not mortgages. That’s why I didn’t go into how this investment works with leverage.

    And Boris – as always I can’t disagree with you. But what you say is also kind of the point of the article. Property has done really well in the past – but now it looks expensive. Stocks have a blotted copy book – now they look reasonable value (with some prospect of growth).


  • LR

    You are forgetting these aspects of property which make the argument harder justify 2nd property ownership:-
    Maintenance costs
    Management fees
    Rental Void periods
    Service charges if in a leashold (flats) typically > a months rent.
    Costs of legal contracts
    Non payment of rents and court costs for eviction
    Multiple occupancy regulations
    Gas and Electricity safety cerificates
    The costs of purchasing the property – solicitors fees
    The costs of purchasing the property – land registry
    The costs of purchasing the property – building surveys
    The costs of selling the property – solicitors fees
    Stamp Duty
    Estate agency fees
    Exposure to council tax if the property is empty
    Heating and lighting during void periods
    Security costs – if alarmed or monitored
    Capital gains tax on sale
    Your time involved in all of this

  • Boris MacDonut

    #46. You cite a fund’s performance since 1991. I am citing the general increase since 1999. I’m sure there are equally properties that hugely exceed the trend of house prices too.
    For ordinary risk averse Joe’s who need somewhere to live property is as good as anything. For tose with spare cash I’d suggest a decent Rene Magritte or some Meissen ware.

  • Robert


    No, I stated that I have held funds since 1991 but I cited the performance from 1999 to 2013 which is the same period as quoted by yourself. Agreed, there are other investment opportunities but too many people neglect shares, mainly out of ignorance or because of excessive charges levied by some fund managers and financial advisors in the past. One thing is for certain, in the current climate, cash on deposit is guaranteed to lose money

  • Rich in name only

    Why is the return on BTL always compared to buying shares?

    Isn’t it better to compare BTL to Spread Betting, because these two types of investment, and I use the term ‘investment’ loosely, are both a leveraged gamble on a single asset type, both with a serious downside if things go pear-shaped.

  • george holt

    properties are in general half price now especially in US, better buck than gold, unless you need a new mooring weight!we all knwe confete is abound, so at least with property it has a real value and a need that is;nt going anywhere soon, capital appreciation will kick in plenty on the inflation wagon, that must be just around the corner! happy investing all!

  • Kevin R

    thanks for the article Bengt. I suspect on the whole you are right, given the outrageous property prices in much of the UK. As I near retirement this argument is very pertinent for me. I have been looking at the Spanish property market where flats for holiday let can be bought at prices that seem like pocket money compared to UK prices. the returns look good and surely the only way the prices will move in the longer term is up, given the tiny prices they are now. Have you done any research on the markets in Spain or elsewhere?

  • brian

    1….assets all in one basket ….. if you have a 400k house to rent then all your funds are in one basket …. 20 ftse stocks yeilding4-5 % carry much less risk, … cash can be raised by disposing of just 5% of the holding .

    2.. leverage…spread betting on indexes will give same leverage as property , plus no tax liability…. and can pay whether market moves up or down.

  • Cynical Investor

    I love it when I hear property investors say they bought a property at a discount. They did not. The true value of a property is what someone is willing to pay for it at a given moment in time. Qed there can be no discount as the buyer is paying the price the seller is willing to accept. Property is an illiquid asset whose true value is only known at two points during your ownership of it….. when you buy it and when you sell it. It is this very illiquidity that is the source of properties attraction to many investors because mentally most people like to think that the increase in value is on a straight line basis between these points.

  • Mondongo

    Horses for courses.I haven’t a clue about investing in shares,so many buy this buy that,gold,silver,oil,coal new tech etc,etc I am dizzie as hell.I have a couple of rental flats,with no mortgage,which I bought nearly 20 years ago.They have increased in value x 6 plus I have had rental income lets say on average £9k for both allowing 90% tenanted(had long term tenants) so that’s gross income of £162k.I would think expenses a max of £35k so I
    would guesstimate £6,350 per year income.I just passed the two flats over to my kids and everyone is happy.I have friends who have property and have had the proverbial tenants from hell and it has cost them a lot of time and money to sort it but maybe I have been lucky.btw Elizabeth,I heard some bad reports on IPIN Global so check them out?

  • Stephen L

    After reading through all the above, I conclude that many anti-equities pro-BTL investors are financially illiterate. That doesn’t mean that fortunes have not been and will be not continue to be made in property investing: using leverage and local knowledge, contacts, diligence and good fortune, BTL can surely produce results. But Boris McDonut is just one among many who misrepresents the virtues of the stock market during a very poor period by ignoring dividend income. Compound interest is one of the wonders of the financial world: it needs to be considered both positively (reinvested dividends, e.g.) and negatively (accumualting interest on debt)…..

  • Fred

    I completely agree with that article, adding the liquidity provided by the stock. I don’ t think house prices will go up in the next decade however the leverage will protect against inflation. Hence I would buy something to live in (you don’t pay taxes on the rent you save) but no B2L at all, stick to gold and shares

  • km

    Investing in property is like any other investment. You need to evaluate the returns and the risks.
    I purchased property in 1990 and 2000, which I still own.
    They provide me with a very good return on my investment, rental return on the purchase price is currently 10+%.
    In addition there is capital appreciation, but this is very unpredictable and there is Capital Gains Tax.
    But I could have purchased further properties later but chose not to as the reward/risk ratio had changed.
    I would also say that you don’t just purchase property and wait for the rent to roll in.You have to manage it and invest in maintaining/improving the property,
    Over the long term property investing can be profitable, but it takes more work than many people imagine.
    At the right price and if you are prepared to put in the effort property can be profitable over the long term.
    Final warning, be prepared if interest rates go up in a few years time

  • Barkingmad

    “I purchased property in 1990 and 2000, which I still own. They provide me with a very good return on my investment, rental return on the purchase price is currently 10+%”

    I never really understand why people quota a yield based on a purchase price – especially when it is up to 13-23 years ago. Surely it’s more meaningful to quote it based on current value to make a comparison with other investments.

  • Jody


    This post is very opinionated and i believe that property investment is the smartest thing you could do with your money i have been a property investor for over 20 years and have worked along side a company that whole time my rental return on the purchase price is currently 12%. visit http://bit.ly/UA0pHF to see how you can really maximise your investment.

  • Norton

    I will not enter the debate, as most has already been said, but give my portfolio as an example. In 1980 I started a pension, purchased stock |(via shares and managed funds), was advised to take out an endowment, and invested in property. The investment that I have had most control over is the property. All other has been undertaken by seeking advice. I have invested about the same amount in each area accept the endowment. Today my property protfolio is worth three times my stock and brings in five times the income: my pension was a relative waste of the money and effort and the endowment realised less than if I had placed the money in the average building society

  • sugeng saveharto

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  • archie

    now do i buy shares or do i buy more houses ??? i’m reaching the 40% tax one house like others has £550 per month rent coming in £434 morg so £116 before tax tax is around £930 now but will go to £1860 if i go to 40% please help how do i get around this?