Stock Market or buy to let?

MEM62

MinuteNoodles said:

MEM62 said:

BTL Is nowhere near a tax efficient as a pension.  Not only are you taxed on the income but you will be lumbered with the additional stamp duty.  Being a landlord is not passive.  It comes with responsibilities and you have to spend time running your business.  There are risks - for example, a nightmare tenant can cost you thousands.  Lastly, whatever calculations you may have done I guarantee that you have under-estimated your costs.   
A pension is tax efficient and passive. Dependent on your tax position you will get 25% gain on the day you put the money in. 

It still amazes me that anyone still believes that BTL's are a good alternative (or any kind of alternative) to a pension.  

Not convinced. Here's the numbers I've been looking at where I live as I currently have £20k sat in a Santander account which I intend to not be there in a few months and one option was to put it into my SIPP/ISA or invest in a BTL. I've been a landlord before doing it directly and not using a letting agency so this isn't my first rodeo. I've also had a nightmare tenant who wrecked a property that came with a five figure repair bill so I've been there and done that too and learned the lessons.

So....
One bed flat with sitting tenant £60,000. Part of a converted former mill, in very good condition.
Deposit £12,000
Mortgage interest only £48k at 2.1% fix for 5 years = £84 a month
Maintenance fees = £100 a month.
Total outgoings per annum including landlord insurance and annual gas safety check = £2458 / £204 a month.

Income. Currently let out at £385 pcm, long sitting tenant. Even if they left and I ended up with a tenant on LHA (very unlikely given demand for non-letting agency lets) the LHA for the area is £349 a month.
Profit = £181 a month or £2712.

So...£1800 stamp duty, £600-£700 in legals, total investment out of my pocket £14,400-£14,500.  Wife has plenty of unused personal allowance so it can go in her name so tax paid on income = £0.

Unless I have got the maths wrong from me spending £14,500 (and leveraging £48k of the bank's money) I get a return of ~£2700 or ~19%. 5 years, the length of the fix, sees my entire stake returned to me in full which of course I can then leverage again or pop into my pension. From thereon in I've got effectively a £2700 a year income plus whatever the property rises in value (it'll be well within the CGT allowance unless Parliament moves to York), a return much more than putting that £14,500 in a SIPP would get me even with the additional growth from the HMRC top up even in a boom year. And I can put that £2700 income into a SIPP and get the HMRC top up year after year after year.

And yes whilst you do get a 25% boost from HMRC the day you put your money in it's a one off. 

If you feel that's the best option for you fill your boots. It is not for most people.  You have an advantage in that your wife has tax-free allowance to reduce the liability.  Most do not.  You also appear to have the time and expertise to run the business. Most do not.  At the end of the day you still have most of the disadvantages.  You are running a business instead of having a passive investment.  Your investment is illiquid, outside of a tax wrapper, subject to CGT and falls within your estate when inheritance planning.  But again, if it works for you fine.  For most it is far from the best option.   

beetleboy72

TBC15 said:

Even on my worst investment days and I’ve had a few over the last 30ys I’ve never had an investment ring me up in the middle of the night to say the roof is leaking.

Haha! Good point, I have a fear of bad tenants and hassles of chasing up issues!

enthusiasticsaver

I would always invest in funds rather than BTL.  BTL is very dependent on good tenants who pay regularly and on how sound the property is or you could end up spending a fortune on it to make it liveable.  Investments are just invested and then you can essentially forget about them. Much more tax efficient too.