Why BTL vs shares ?

jamei305

lulabelle1 wrote: »

22 Years:
£40k S&S ISA (£100 month left over after mortgage, costs, tax etc)
£150k Property - mortgage cleared
Total Value - £190k

If I'd invested the £35,610 in a S&S ISA over the 25 years (assuming the same 5% growth rate that I applied to the leftover £100 per month), then it would be worth £80k.

What if over those 22 years mortgage rates average 4%, a not unreasonable assumption? What would the average mortgage rate have to be for you to make more with an ISA?

Drp8713

lulabelle1 wrote: »

Firstly, CGT - after allowance, would be £3,388. It still makes the B2L a good investment.

Secondly, I did not borrow £80k. My upfront cost £35,610.

Thirdly, I have no idea where your borrowed £80k is coming from? The only investment from my in to the B2L was the original £35,610

Fourthly, even if I had have borrowed £80k (which I didn't) and then added that to another £36k, that would be an amount of £116k, which if invested over 25 years @5% would be £261k. (Not £390).

So, I stand by my original thoughts......

I invested £35,600 in a B2L
After 25 years, the property will be paid for and I will also have at least £40k invested as a result of the monthly surplus.

This includes no property growth for 22 years, which as we know is unlikely, therefore making the investment even more interesting.

I'm not saying that everyone should invest in B2L. I do invest in both my SIPP and S&S ISA. I'm simply saying that I do not understand why people seem so against negative about B2L.

The mortgage of £80k? That borrowing allowed you to leverage your property returns, so you would need to add £80k to your shares investment to compare like for like.

Also you are not using compound interest when calculating the return on the shares.

lulabelle1

Drp8713 wrote: »

The mortgage of £80k? That borrowing allowed you to leverage your property returns, so you would need to add £80k to your shares investment to compare like for like.

Also you are not using compound interest when calculating the return on the shares.

Yes, the mortgage of £80k, but that is being fully funded from the rental paid by the tenant. So, it's not 80k that I would ever have available to invest in the first place.

I used a simple savings calculator on the Nationwide website.

lulabelle1

jamei305 wrote: »

What if over those 22 years mortgage rates average 4%, a not unreasonable assumption? What would the average mortgage rate have to be for you to make more with an ISA?

Current int rate is 2.99% - mortgage is £383
4% = £416
5% = £456
6% = £499

Assuming that the mortgage int rate inc from 2.99% to 6% next week for the remaining 22 years, then I would not have the surplus £100 to invest.

However, the monthly rental rate could be increased to partly negate that as we already have it set below market rate since we got our last tenant.

Drp8713

lulabelle1 wrote: »

Yes, the mortgage of £80k, but that is being fully funded from the rental paid by the tenant. So, it's not 80k that I would ever have available to invest in the first place.

I used a simple savings calculator on the Nationwide website.

Yes, but if you got an £80k loan, and bought shares with it, over 25 years the dividends would repay the loan.

At the moment you are comparing a £36k investment with a £115k investment and seeing the £115k investment return be higher. Thats because you borrowed £80k and invested it to boost your returns.

Look out for a compound interest calculator, unlike with a property, companies invest some of their profits back into their business to grow them further, and pay you a dividend which you can reinvest.

If i invest £100 in a company, that pays a 5% dividend, which i reinvest, the returns are not 5% of £100 each year, only year 1.

Year Year Interest Total Interest Balance
1 £5.09 £5.09 £105.09
2 £5.35 £10.45 £110.45
3 £5.63 £16.08 £116.08
4 £5.91 £21.99 £121.99
5 £6.21 £28.20 £128.20
6 £6.53 £34.74 £134.74
7 £6.86 £41.60 £141.60
8 £7.21 £48.81 £148.81
9 £7.58 £56.39 £156.39
10 £7.97 £64.36 £164.36
11 £8.37 £72.74 £172.74
12 £8.80 £81.54 £181.54
13 £9.25 £90.78 £190.78
14 £9.72 £100.50 £200.50
15 £10.21 £110.72 £210.72
16 £10.74 £121.45 £221.45
17 £11.28 £132.74 £232.74
18 £11.86 £144.59 £244.59
19 £12.46 £157.05 £257.05
20 £13.10 £170.15 £270.15
21 £13.76 £183.91 £283.91
22 £14.46 £198.38 £298.38
23 £15.20 £213.58 £313.58
24 £15.98 £229.55 £329.55
25 £16.79 £246.34 £346.34

Malthusian

Rather than repeat the case against BTL investment I'll simply answer the question in the title. There is no reason why. It's purely emotional.

Over the years hundreds of people have posted on this forum asking about whether they should do BTL or how, and after having the advantages of a diversified stockmarket portfolio explained to them, many decide that they'd prefer the stockmarket portfolio.

Nobody has ever posted on this forum asking about whether they should invest in a diversified stockmarket portfolio and been persuaded they should invest in BTL instead.

You can stop worrying about whether you are missing something.

pjcox2005

Malthusian wrote: »

Rather than repeat the case against BTL investment I'll simply answer the question in the title. There is no reason why. It's purely emotional.

Over the years hundreds of people have posted on this forum asking about whether they should do BTL or how, and after having the advantages of a diversified stockmarket portfolio explained to them, many decide that they'd prefer the stockmarket portfolio.

Nobody has ever posted on this forum asking about whether they should invest in a diversified stockmarket portfolio and been persuaded they should invest in BTL instead.

You can stop worrying about whether you are missing something.

I don't have a BTL and go with stocks, but the argument there is no reason is simply invalid when as pointed out earlier in the thread the two main reasons are leveraging (definitely available) and potential pace of growth of property/rental incomes (no guarantee). For many BTL is higher risk and hassle, but it does have potential advantages too.

pjcox2005

Drp8713 wrote: »

You are not comparing like for like.

Firstly, if you sold your £150k property at the end, you would pay 28% CGT any any gains over the allowance

Secondly, you borrowed £80k to get that £190k (less taxes) return. If you invested that £80k plus your £36k in a S&S ISA at 5% over 25 years you would have £390k.

You simply won't get someone to lend you £80k at mortgage interest rate levels to invest in stocks over a 25 year period. Leveraging is in point so shouldn't be including a hypothetical £80k in S&S ISA when comparing like for like.


Agree on the capital gains point and other potential costs though.

Anonymous101

pjcox2005 wrote: »

You simply won't get someone to lend you £80k at mortgage interest rate levels to invest in stocks over a 25 year period. Leveraging is in point so shouldn't be including a hypothetical £80k in S&S ISA when comparing like for like.


Agree on the capital gains point and other potential costs though.

I disagree. There's no reason why if you had enough equity in your house that you couldn't mortgage up to a 90% LTV and invest all the previous equity. Perhaps its not advisable but a colleague of mine has done just that.

lulabelle1

Drp8713 wrote: »

Yes, but if you got an £80k loan, and bought shares with it, over 25 years the dividends would repay the loan.

At the moment you are comparing a £36k investment with a £115k investment and seeing the £115k investment return be higher. Thats because you borrowed £80k and invested it to boost your returns.

Look out for a compound interest calculator, unlike with a property, companies invest some of their profits back into their business to grow them further, and pay you a dividend which you can reinvest.

If i invest £100 in a company, that pays a 5% dividend, which i reinvest, the returns are not 5% of £100 each year, only year 1.

Year Year Interest Total Interest Balance
1 £5.09 £5.09 £105.09
2 £5.35 £10.45 £110.45
3 £5.63 £16.08 £116.08
4 £5.91 £21.99 £121.99
5 £6.21 £28.20 £128.20
6 £6.53 £34.74 £134.74
7 £6.86 £41.60 £141.60
8 £7.21 £48.81 £148.81
9 £7.58 £56.39 £156.39
10 £7.97 £64.36 £164.36
11 £8.37 £72.74 £172.74
12 £8.80 £81.54 £181.54
13 £9.25 £90.78 £190.78
14 £9.72 £100.50 £200.50
15 £10.21 £110.72 £210.72
16 £10.74 £121.45 £221.45
17 £11.28 £132.74 £232.74
18 £11.86 £144.59 £244.59
19 £12.46 £157.05 £257.05
20 £13.10 £170.15 £270.15
21 £13.76 £183.91 £283.91
22 £14.46 £198.38 £298.38
23 £15.20 £213.58 £313.58
24 £15.98 £229.55 £329.55
25 £16.79 £246.34 £346.34

And now the penny drops and I can see why the general consensus goes against B2L.

And against overpaying the mortgage!

Thank you for taking the time to go through the numbers with me. It certainly means that I will be rethinking future investment channels.