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BTL vs Shares ?

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    BTL vs Shares ?

    I know its the top of the property market and interest rates are on the up but currently sitting on £70k invested in the stock market. Principle residence has eight years left on mortgage. No other property. Additional £100k in various pensions with contributions on a monthly basis.

    Question : It is better to leave the £70k or invest in a BTL.

    Assumptions

    Buy £200k flat (Surrey on mainline BR), 25 year int only mortgage, £40k deposit, £25k in mortgage offset account, £5k for initial fees / outlay. Initial monthly rental £775 (deliberately lowish), vacancy assumption one month in 12.

    Returns same for Housing and Stock Market increase over 25 years (not unreasonable compared to returns since mid 80's). For both assume returns Yr 1-2 -2%, Yr 3-4 0% Yr 5 2% Yr 6-25 5% (again not unreasonable as average over the last 20 has been 6-8%)

    Safe assumptions on costs (managing agents fees, service costs etc)
    All future flows discounted at 3%. All ploughed into my amateur investment appraisal model

    Results

    BTL does not break even on rental until year 12 and just cumulatively breaks even over the whole 25 years, but..

    After 25 years, discounted Capital gain (after tax) on flat is £190k and is higher than the investment in the stock market by £70k (due to the gearing benefit of the mortgage i.e you get capital gain on three times the investment).

    As I see it, even though there are almost certain declines ahead for the property market, the gearing benefit still makes it a better long term investment than the stock market. There will always be initial pain for long term gain.

    Am I out of my tiny mind ?

    #2
    [QUOTE=the guy with the bowtie]
    even though there are almost certain declines ahead for the property market, the gearing benefit still makes it a better long term investment than the stock market.[QUOTE]

    So why not geta a guaranteed return on your money now, and buy a flat in 6 years time when house prices bottom out?

    Comment


      #3
      Sell your stocks.

      Buy commodities (oil, metals, grain). All of these are going to fly due to demand from India and China.

      You will thank me.

      Comment


        #4
        The gearing and the ease of borrowing really does make a BTL attractive. You could gear your shares via spread betting or CFDs but it is vastly more risky because you could be wiped out if something goes wrong whereas you could always just hang on to your property as long as someone is willing to rent it and you can pay the interest. So with property you are more likely to ride out any storms.

        No one knows what will happen in the future but I wouldn't buy just now because I think property will be better value in the short term future (next five years). I've been wrong for years on that though so who knows.

        Comment


          #5
          Icesave on 6.2% and sit back and wait.

          Comment


            #6
            Originally posted by rootsnall
            Icesave on 6.2% and sit back and wait.
            You pay 40% tax on the interest, giving you a real return of less than inflation. Stupid move.

            Comment


              #7
              sell everything and buy the new aston.

              Comment


                #8
                Originally posted by rootsnall
                Icesave on 6.2% and sit back and wait.
                I've sold the lot, paid the mortgage off and stuck the rest in ICE Save in the wifes name - not working so tax free.

                Now want to open a Cater Allen USD Account.

                Comment


                  #9
                  Originally posted by TheRightStuff
                  I've sold the lot, paid the mortgage off and stuck the rest in ICE Save in the wifes name - not working so tax free.

                  Now want to open a Cater Allen USD Account.
                  Like that's a good idea.

                  Comment


                    #10
                    Originally posted by DimPrawn
                    Sell your stocks.

                    Buy commodities (oil, metals, grain).
                    Yup, but don't hold the commodities via instruments valued in USD as that is going to tank too.
                    Drivel is my speciality

                    Comment

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