Is investing in property still the best long term option?

MaxiRobriguez

Retireby40 wrote: »

So if property isn't that good then where would one invest say 30k and in 20 years have 100k to show for that or an asset of similar status?

You only make such returns on property because you are using leverage. Leverage is fine when markets are up but causes a headache when markets are down.

It's not beyond the realms of possibility to imagine that house prices, at record salary multiples and at the point interest rates are at historic lows, might not actually increase in value at all for a number of years. The risk with another property is you get a lot close to the 40% tax band as well, so you'll end up paying twice as much as you currently are on two properties rather than just one. If such a scenario happens will you actually make any money?

I'm not saying don't do it, but it doesn't sound like you have considered the risks properly. Property has been a holy grail but is unlikely to be in the medium term. You could spread your investment better by having another asset class or two chucked in. No guarantees the investment will be any better, but it reduces systematic risk.

movilogo

Yes, in general if your long term horizon is 10+ years.

But then it should be divided between cash flow and capital appreciation.

In most of South East, the house price is falling and it will take a long time to gain on capital appreciation.

If purchase price is high, then cash flow will be less (or even negative depending on interest rate).

So answer to your question depends on where you are planning to buy.

Retireby40

Plan is to buy a 3 bed semi which goes for around 100-120k my neck of the woods. My aim would be in 20-25 years to have 2 properties outright. The price of how much it would sell for isn't too important the important factor is that someone would be basically paying it for me by renting out. Yes I have things to pay but ultimately the tenants will pay a much bigger chunk of the mortgage than me.

I would also be buying a modern house less than 15-20 years so I wouldn't expect the same problems as an older house. Anything can happen but the inherited house has had no significant problems in the 15 years it has/had been owned. Nothing more than basic plumbing or a new bathroom which was just through choice not that it wasn't good.

I doubt il be able to do anything for at least 18 months but it's something I need to think about now.

MaxiRobriguez

Retireby40 wrote: »

Plan is to buy a 3 bed semi which goes for around 100-120k my neck of the woods. My aim would be in 20-25 years to have 2 properties outright. The price of how much it would sell for isn't too important the important factor is that someone would be basically paying it for me by renting out. Yes I have things to pay but ultimately the tenants will pay a much bigger chunk of the mortgage than me.

I would also be buying a modern house less than 15-20 years so I wouldn't expect the same problems as an older house. Anything can happen but the inherited house has had no significant problems in the 15 years it has/had been owned. Nothing more than basic plumbing or a new bathroom which was just through choice not that it wasn't good.

I doubt il be able to do anything for at least 18 months but it's something I need to think about now.

Buying a £120k house may have implications if you want to move from where you currently live. Even if you fashioned a £20k deposit fairly pronto you'd still be left with a 4x salary mortgage.

If you wanted then to move out of where you currently are for whatever reason, you're going to be restricted by lenders because you've already used your leverage on the rental property.

You might need to sell it therefore in order to free up capital to move, and as previously pointed out, you might not get all your money back.

Assess all the risks before allocating all your investment into one area.

Retireby40

Yeah you could be right. If I was to buy it is likely that I plan for the next 5 years I will be where I am.

I just don't want to waste time. House prices are low in my area. I have one house and I have 20+k sitting in an account getting just 1% interest.

chucknorris

_CC_ wrote: »

"Still the best long term option" - when was it ever the best long term option?

Have you looked into other asset classes and tax implications to compare?

We've got about £4m invested in London property and about £2m in shares (for me personally it is now about 50/50 between property and equities), for us without any shadow of doubt, leveraged London property investment has massively (in no way could it be considered close) been the best investment over the last 25 years. The next 25 years may unfold differently, but there is no way that leveraged property in London was not the best investment. I'm not prepared to comment on other regions, because I have done no research, and have no knowledge about them.

Despite that I am shortly going to move out of property, mainly because it is a very long term investment, and I am now in my 60's, and also after almost 28 years, I am fed up being a landlord, my equities have never rang me up about a plumbing leak. I want less hassle during my retirement.

Thrugelmir

Retireby40 wrote: »

My savings of 300-400 is just from my salary. When I take out insurance/rates/repairs etc from the rental money I would say about 300 a month is profit. So really i have about £600-700 a month that could go into something.

Your net rental income is taxable.

Retireby40

I know it's taxable but like I said. If I buy a 100k house and someone even pays 50% of that it's a good thing for me.

All in trying to do is use my money to better my future of if I kick the bucket my future family's. 20k at 1% is not worth a Donald duck at the moment. Nor will it be in 10 years.

I don't know about equities and investments etc but surely with those I could put 20k in and in 10 years it be worth less? However if someone else's money is working for me then for me sounds like less risk.

Vanguard seems to be the one that some people use for equities. Or what I've read or YouTubed. Any other good reviews or experience?

steampowered

Is investing in property still the best long term option?

Property never was the best long term option. Refer to https://www.moneynest.co.uk/wp-content/uploads/2018/01/Property-Vs-Shares-Trading.png. Of course that graph does not take account of all the extra costs and taxes associated with investing in property.

Retireby40 wrote: »

Stocks and shares is a gamble.

This is only true if you are investing for the short term.

That is simply untrue in the long term. The average long term return of stocks & shares on the major stock markets is about 10% a year.

If you leave money in a diversified portfolio of stocks and shares for the long term, and let dividends continue accruing, that is not high risk. It is low risk. Lower risk than putting all of your money into one or two properties, and most definitely lower risk than loading yourself up with debt to afford said properties.

steampowered

Retireby40 wrote: »

I know it's taxable but like I said. If I buy a 100k house and someone even pays 50% of that it's a good thing for me.

You can achieve exactly the same thing if you borrow money to buy shares.

If you borrow £100k to buy some shares, and you use the dividends from those shares to pay the debt, you end up getting the shares for free.

Obviously - if you are borrowing money to invest - that is a high risk strategy. This is true regardless of whether you are borrowing to invest in property or whether you are borrowing to invest in shares. You are taking the risk that the amount of the interest you pay will exceed the profit you make on the asset.

You are taking a gamble which will go sour if the value of the asset goes down, the revenue from the asset dries up (e.g. bad tenants), or interest rates increase.