The economy and the autumn statement

cells

chucknorris wrote: »

I might consider buying an annuity at some point, nothing too significant, merely to increase the fixed income part of my portfolio. It does go against the grain a bit, for me to invest in something like an annuity, but deep down I have a feeling that it would make sense for me to do it, I don't accept my wife's argument that I shouldn't do it because I might die early, I think it makes sense because I might live much longer, if I do die early, buying an annuity is not going to be a major disappointment of that event! The alternative might be to invest in some freehold ground rents.

The one advantage you have is that you will know your own health and history and that of your relatives which might give you a better idea of your chances of exceeding the normal life expectancy of someone your age than the actuaries pricing all this on averages.

Do annuities give a better return than longer fixed rate savings? Instead of buying a RPI annuity of £10k pa for a sum if £300,000 you could put the same sum into a five year fix account at 3.05% giving you a £9,150 pa return which is close to the £10k pa pension youbwould get and you still have the £300k capital which you could out towards an annuity at a later day eg in five years time whereby the pension would be greater for the same sum as you would be older

Also what about the option of keeping one of your BTLs and doing a multi year contract with an estate agent or fellow landlord to have it fully managed and guaranteed. Or buy shares in a REIT which are meant to distribute 90% of the rents to shareholders. Not saying these are better options just that I would look into them of I were your age and thinking of retirement

chucknorris

cells wrote: »

The one advantage you have is that you will know your own health and history and that of your relatives which might give you a better idea of your chances of exceeding the normal life expectancy of someone your age than the actuaries pricing all this on averages.

Do annuities give a better return than longer fixed rate savings? Instead of buying a RPI annuity of £10k pa for a sum if £300,000 you could put the same sum into a five year fix account at 3.05% giving you a £9,150 pa return which is close to the £10k pa pension youbwould get and you still have the £300k capital which you could out towards an annuity at a later day eg in five years time whereby the pension would be greater for the same sum as you would be older

Also what about the option of keeping one of your BTLs and doing a multi year contract with an estate agent or fellow landlord to have it fully managed and guaranteed. Or buy shares in a REIT which are meant to distribute 90% of the rents to shareholders. Not saying these are better options just that I would look into them of I were your age and thinking of retirement

The main disadvantage that I perceive with annuities is that they are taxed at 20% and 40% (rather than 7.5% and 32.5%, which dividend income is taxed at).

My wife is 11 years younger than me and is not selling her properties for quite some time (so our joint assets will still have a significant property bias), I will definitely be keeping one (half) investment property that we jointly own, and it is quite likely that I will also keep one solely owned property too, for the sake of maintaining portfolio diversification.

If I wanted to keep more in property, but move away from directly owned property, I think I would rather invest in a freehold ground rent investment than a REIT.

I probably look indecisive, but that is because I'm still thinking this through. Discussing it on here helps me fine tune my thoughts, and it is good to listen to what other people say too.

chucknorris

cells wrote: »

Also what about the option of keeping one of your BTLs and doing a multi year contract with an estate agent or fellow landlord to have it fully managed and guaranteed. Or buy shares in a REIT which are meant to distribute 90% of the rents to shareholders. Not saying these are better options just that I would look into them of I were your age and thinking of retirement

I find that despite not wanting to be 'hands on' I am not that good at delegating, whenever I delegate I usually have to end up sorting someone's else's mess up. So using an agent doesn't appeal.

Is the 90% distribution of rent usually a guarantee? I don't know much about REIT's, but my perception (without knowledge) was that fees would eat into the returns compared to direct investment in property.

cells

chucknorris wrote: »

I find that despite not wanting to be 'hands on' I am not that good at delegating, whenever I delegate I usually have to end up sorting someone's else's mess up. So using an agent doesn't appeal.

Is the 90% distribution of rent usually a guarantee? I don't know much about REIT's, but my perception (without knowledge) was that fees would eat into the returns compared to direct investment in property.

KEY FACTS ABOUT REITS

REITs must pay out 90% of their property income to shareholders every year.
Dividends from REITs are treated as property income to the investor, and are taxed accordingly. These dividends are subject to a withholding tax at basic rate income tax, except for certain classes of investors who can register to receive gross rather than net payments. These include charities, UK companies, and pension funds.
REIT shares can be held in ISAs and Child Trust Funds (CTFs), and the managers of these can receive gross distributions, making these highly tax efficient.
REITs must be primarily engaged in property investment, rather than in development or other non-property related activities.
As REITs are all listed property companies, investments in them are generally very liquid.
- See more at: http://www.bpf.org.uk/reits-and-property-companies#sthash.2GRYRDQz.dpuf

---

An example of a REIT would be Shaftesbury which owns lots of central London property. I think its divi yield is just 1.5% but since it has to give out 90% to investors the dividends should always go up (as rents go up). Also although the divi is only 1.5% that of an annuity is closer to 3.3% but you get to keep the capital invested which itself is likely to rise with central London prices. Eg the NAV of Shaftesbury has grown about 20% this year and 20% last year.

Or British land is another REIT. Its divi yield is 3.3%

The way I view property is that it is similar to a very long dated index linked gilt and REITs are the closet thing to owning property indirectly.

So given the choice of buying a REIT yielding 3.3% or an annuity yielding 3.3% for me I think that the REIT wins by a long shot.

The only safety of an annuity is that the income is fixed and know for sure but property income is virtually the same imo. When rents and imputed rents make up something like 20% of the nations GDP I don't see how they can move much above or below GDP in anything other than decade timeframes. Also for the same index linked income of say £30k pa the REIT or the annuity is going to cost about a million pounds. However on death the annuity leaves you nothing but the REIT leaves you with a million pounds (or likely more)

From my understanding I view reits as more steady and far more secure versions of shares if other companies. Nokia can go down in value 80% but Shaftesbury can't as the value of its properties in central London can't go down in value 80%. Likewise BP could cut its dividends 80% if oil prices crash but British land can't because rents can't crash 80% and their tenant's are on multi year contract's

But as always do your own research.

If there was a pure residential REIT geared to 70% I would buy that rather than invest in homes myself

Thrugelmir

cells wrote: »

but British land can't because rents can't crash 80% and their tenant's are on multi year contract's

Tenants go bust. Leases have break clauses. Commercial property becomes redundant over time and requires updating / refurbishment/ redevelopement. Tritax Big Box is an example of a new fad.

chucknorris

cells wrote: »

KEY FACTS ABOUT REITS

REITs must pay out 90% of their property income to shareholders every year.
Dividends from REITs are treated as property income to the investor, and are taxed accordingly. These dividends are subject to a withholding tax at basic rate income tax, except for certain classes of investors who can register to receive gross rather than net payments. These include charities, UK companies, and pension funds.
REIT shares can be held in ISAs and Child Trust Funds (CTFs), and the managers of these can receive gross distributions, making these highly tax efficient.
REITs must be primarily engaged in property investment, rather than in development or other non-property related activities.
As REITs are all listed property companies, investments in them are generally very liquid.
- See more at: http://www.bpf.org.uk/reits-and-property-companies#sthash.2GRYRDQz.dpuf

---

An example of a REIT would be Shaftesbury which owns lots of central London property. I think its divi yield is just 1.5% but since it has to give out 90% to investors the dividends should always go up (as rents go up). Also although the divi is only 1.5% that of an annuity is closer to 3.3% but you get to keep the capital invested which itself is likely to rise with central London prices. Eg the NAV of Shaftesbury has grown about 20% this year and 20% last year.

Or British land is another REIT. Its divi yield is 3.3%

The way I view property is that it is similar to a very long dated index linked gilt and REITs are the closet thing to owning property indirectly.

So given the choice of buying a REIT yielding 3.3% or an annuity yielding 3.3% for me I think that the REIT wins by a long shot.

The only safety of an annuity is that the income is fixed and know for sure but property income is virtually the same imo. When rents and imputed rents make up something like 20% of the nations GDP I don't see how they can move much above or below GDP in anything other than decade timeframes. Also for the same index linked income of say £30k pa the REIT or the annuity is going to cost about a million pounds. However on death the annuity leaves you nothing but the REIT leaves you with a million pounds (or likely more)

From my understanding I view reits as more steady and far more secure versions of shares if other companies. Nokia can go down in value 80% but Shaftesbury can't as the value of its properties in central London can't go down in value 80%. Likewise BP could cut its dividends 80% if oil prices crash but British land can't because rents can't crash 80% and their tenant's are on multi year contract's

But as always do your own research.

If there was a pure residential REIT geared to 70% I would buy that rather than invest in homes myself

I wouldn't invest much in an annuity, I might not even do that, I might go for a freehold ground rent investment, particularly one that may have a potential development opportunity.

Generali

As much as I dislike paying fees, I'd probably go for a REIT fund.

I'm not sure whether Vanguard do a REIT ETF based on the standard REIT benchmark. That might be worth investigating.

chucknorris

Generali wrote: »

As much as I dislike paying fees, I'd probably go for a REIT fund.

I'm not sure whether Vanguard do a REIT ETF based on the standard REIT benchmark. That might be worth investigating.

My thoughts on REIT v ground rent investment are:

You actually own/control the ground rent investment, whereas you don't control the REIT, you are passive, although that comes with its own set of problems:

- You still end up with a long term asset that is illiquid and needs disposing of at a suitable time before death.

- Despite 'owning' the asset, there are still outside influences that can hurt your investment, i.e. changes in legislation affecting leasehold agreements.

- REIT would offer portfolio diversity as I have nothing directly invested in commercial property.

That said though, it might still be a reasonable investment to move BTL property equity (which is also illiquid) into, if a major option was to leave the equity where it was. I keep going around in circles on this one, at the moment I am still in the 'if in doubt do nowt' camp.

What do you think about this:

https://personal.vanguard.com/us/funds/snapshot?FundId=0986&FundIntExt=INT

Pity it wasn't tracking UK property, but there is this:

https://www.ishares.com/uk/individual/en/products/251802/ishares-uk-property-ucits-etf?siteEntryPassthrough=true

The dividend yield is disappointing though

Generali

chucknorris wrote: »

My thoughts on REIT v ground rent investment are:

You actually own/control the ground rent investment, whereas you don't control the REIT, you are passive, although that comes with its own set of problems:

- You still end up with a long term asset that is illiquid and needs disposing of at a suitable time before death.

- Despite 'owning' the asset, there are still outside influences that can hurt your investment, i.e. changes in legislation affecting leasehold agreements.

- REIT would offer portfolio diversity as I have nothing directly invested in commercial property.

That said though, it might still be a reasonable investment to move BTL property equity (which is also illiquid) into, if a major option was to leave the equity where it was. I keep going around in circles on this one, at the moment I am still in the 'if in doubt do nowt' camp.

What do you think about this:

https://personal.vanguard.com/us/funds/snapshot?FundId=0986&FundIntExt=INT

Pity it wasn't tracking UK property, but there is this:

https://www.ishares.com/uk/individual/en/products/251802/ishares-uk-property-ucits-etf?siteEntryPassthrough=true

The dividend yield is disappointing though

Either looks fine if you want property exposure. I note the Vanguard ETF has a PE of 32.5. That's not the fault of Vanguard as they are simply tracking the index.

If you want property exposure it's as good a way as any to go. I honestly didn't realise that the market is trading on those sorts of multiples. I do fear for where we go from here as so many markets seem to be trading on silly valuations.

The last time I looked, a while ago I confess, a third of the main bond benchmark we use at work (the UBS index) was comprised of bonds paying a negative yield. That means that holding those bonds to maturity would mean you earn a negative interest rate.

Bottom line? I have no idea what is a good investment from here. You have to buy something, even if it's simply cash and I can't see a good deal anywhere.

I help run a fund. You could invest with us. We've outperformed the benchmark over 5 years (admittedly by 0.1% post fees) and we are an ethical investment and those have been shown to outperform over time.

chucknorris

Generali wrote: »

Either looks fine if you want property exposure. I note the Vanguard ETF has a PE of 32.5. That's not the fault of Vanguard as they are simply tracking the index.

If you want property exposure it's as good a way as any to go. I honestly didn't realise that the market is trading on those sorts of multiples. I do fear for where we go from here as so many markets seem to be trading on silly valuations.

The last time I looked, a while ago I confess, a third of the main bond benchmark we use at work (the UBS index) was comprised of bonds paying a negative yield. That means that holding those bonds to maturity would mean you earn a negative interest rate.

Bottom line? I have no idea what is a good investment from here. You have to buy something, even if it's simply cash and I can't see a good deal anywhere.

I help run a fund. You could invest with us. We've outperformed the benchmark over 5 years (admittedly by 0.1% post fees) and we are an ethical investment and those have been shown to outperform over time.

That's the problem when the markets and property prices are (historically) high or near their highs, nothing looks particularly tempting. As I said on the other thread, I am currently in the 'if in doubt, do nowt' camp. Not particularly adventurous I admit, but then again I am looking for adventure, I am nowhere near as bullish as some on here believe.