UK Affordability still very good

WengerIn

economic wrote: »

i think the easier (NOT easy) question to answer is which will do better: stocks or property?

over the long run stocks have done better beating property returns. stocks seem to have broken out and entered a bull market in 2013. this means its only been 4 years into the current bull market. everything points to the market going much higher. with property it is very questionable what will happen.

There are another couple of problems when comparing the two asset classes:

- People don't factor in 'sweat' when comparing BTL with shares. If I repaint the walls every 2-3 years between tenants and put down new laminate flooring once a decade then I should charge something for my time.
- The Chairman of BP doesn't call me up if he boiler breaks down on Xmas Day (unless he's renting my house)
- BTL for most people tends to concentrate risk not diversify away from it.

economic

WengerIn wrote: »

There are another couple of problems when comparing the two asset classes:

- People don't factor in 'sweat' when comparing BTL with shares. If I repaint the walls every 2-3 years between tenants and put down new laminate flooring once a decade then I should charge something for my time.
- The Chairman of BP doesn't call me up if he boiler breaks down on Xmas Day (unless he's renting my house)
- BTL for most people tends to concentrate risk not diversify away from it.

agree. we also have the folllowing:

- tax differences have an impact: shares you can pu tin an ISA/pension. property you cant. however if you have enough money and isas and pension maxed out then property MAY make sense buying, although with the tax changes this is less desirable.

- shares more volatile but if you are in it for long term then usually its irrelevant

- shares easily liquidated.

- property can be leveraged to amplify returns but obviously more riskier then.

WengerIn

economic wrote: »

agree. we also have the folllowing:

- tax differences have an impact: shares you can pu tin an ISA/pension. property you cant. however if you have enough money and isas and pension maxed out then property MAY make sense buying, although with the tax changes this is less desirable.

- shares more volatile but if you are in it for long term then usually its irrelevant

- shares easily liquidated.

- property can be leveraged to amplify returns but obviously more riskier then.

Agree with all of this but to make the point shares normally have leverage built in as the companies have borrowed. Shares tend to be less risky regardless of leverage, my guess is because they're sold into such a regulated environment. I can't think of another market except maybe pharma where both buyers and sellers are so regulated.

However the leveraged shares carry less risk in at least one regard as a share price can't go below £0 whereas the house price can fall below the value of my mortgage.

I can carry BTL mortgage in my pension fund if I choose to although there is a limit to my allowed leverage and my pension isn't taxed as kindly as UK pensions (few are). I think I might be able to reclaim tax on flights to the UK if I buy BTL in the UK. That in itself might be worthwhile.

economic

WengerIn wrote: »

Agree with all of this but to make the point shares normally have leverage built in as the companies have borrowed. Shares tend to be less risky regardless of leverage, my guess is because they're sold into such a regulated environment. I can't think of another market except maybe pharma where both buyers and sellers are so regulated.

However the leveraged shares carry less risk in at least one regard as a share price can't go below £0 whereas the house price can fall below the value of my mortgage.

I can carry BTL mortgage in my pension fund if I choose to although there is a limit to my allowed leverage and my pension isn't taxed as kindly as UK pensions (few are). I think I might be able to reclaim tax on flights to the UK if I buy BTL in the UK. That in itself might be worthwhile.

good points. i compeltely missed the leverage points you made. thanks.

GreatApe

There really needs to be a proper residential UK REIT preferably half a dozen with each one concentrated in one/two regions of the UK.

It seems almost absurd that there are millions of landlords who own 5.5 million residential BTLs but no pure residential REIT geared to 65% in the UK.

If such a REIT exited we would not be debating property or shares we would be debating property shares or other non property shares.

chucknorris

Crashy_Time wrote: »

I`m talking about actual sales, not sellers fantasy prices.

I keep telling you, the house ins't anything special, put it this way, I definitely wouldn't live in it, even if it could be relocated it to a location where I wanted to be. Hackney prices have gone berserk the last few years.

chucknorris

WengerIn wrote: »

Out of interest have you kept a log of costs? It would be really very interesting to compare total net returns from your landlording with FTSE100/S&P500/UBS Bond Index total returns. No need to post all the figures, just a pair of figures of gross rental returns after interest, fees, taxes and costs and gross capital returns. (Happy to do this off board).

As a non-UK taxpayer I'm starting to think that UK BTL might be a good investment for me. I am tax resident in a place which has some very kind tax laws for BTL and my pension savings are getting to a level where I'm starting to think that a bit more diversification might be in order.

I've just got back in after a day at my father in law's (rented) house, he is a 'hoarder', so I am really tired, both mentally and physically. I'll reply to your post tomorrow, I don't have a log, but I have all my tax returns (plus a lot of the handy spreadsheet versions for the last 15 years) dating back to the early 90's. Right now my plan is G&T's, bath, cook, relax watching tv.

EDIT: Comparative figures for net returns are easily not available, but I do know that my property returns have far exceeded my returns from shares, but that is because:

- I was leveraged which makes a big difference
- I invested in the 90's in a high interest environment, and we moved to low interest rates, which inflated prices.
- I invested mainly during the early 90's recession when prices were rock bottom

We are in a completely different environment now:

- Property values are much higher now (London specific), and I just can't see significant real term capital gains.
- The income tax rules have moved against property.
- Stamp duty has increased.
- CGT is higher for property (and not easily avoided, like with shares)

It is more profitable for me to retain my properties rather than sell and re-invest the equity in shares, but that is because of the capital gains tax that I would have to pay. Instead of losing the value of that tax, I can get a return on it by staying in property, which has recently caused me to rethink my long term strategy. I am still going to sell another lower yielding flat soon, but I think (this is still under consideration) I will retain 1 or 2 higher yielding 3 bed flats until I am about 70 (10 years away), then invest the equity in bonds.

Jonbvn

economic wrote: »

i think the easier (NOT easy) question to answer is which will do better: stocks or property?

over the long run stocks have done better beating property returns. stocks seem to have broken out and entered a bull market in 2013. this means its only been 4 years into the current bull market. everything points to the market going much higher. with property it is very questionable what will happen.

Wow! That is a very bullish POV. I am certainly no where near as certain of the markets going forward. I am fairly certain that there will be a lot of volatility though.

economic

Jonbvn wrote: »

Wow! That is a very bullish POV. I am certainly no where near as certain of the markets going forward. I am fairly certain that there will be a lot of volatility though.

But if it were easy to see markets will go up, they would be higher by now. Buy when it doesn't make sense to buy.

Crashy_Time

economic wrote: »

But if it were easy to see markets will go up, they would be higher by now. Buy when it doesn't make sense to buy.

Or just accept that smarter investors than you have probably already priced in these opportunities and just buy a global equity fund of some description, and drip in a few hundred or whatever a month?