Regrets - London property VS shares

Markneath

My btl’s have far out performed my shares the last 7/8 years on, rough example. House bought in 2016 for 100k
25k down, 3k fees etc now worth 130k.
Basically 28k is now 58k plus approx 120 per month after costs gives another 7k plus, so 28k down is 65k today.
BTL’s are usually poor investments with more expensive properties or when a lot of equity is held in them.
My shares are maybe up 50/60% in that time period.

AdrianC

Markneath said:

My btl’s have far out performed my shares the last 7/8 years on, rough example. House bought in 2016 for 100k
25k down, 3k fees etc now worth 130k.
Basically 28k is now 58k plus approx 120 per month after costs gives another 7k plus, so 28k down is 65k today.
BTL’s are usually poor investments with more expensive properties or when a lot of equity is held in them.
My shares are maybe up 50/60% in that time period.

You could, of course, borrow to leverage market investments, too.

Yet nobody ever does that.

BTW, your £28k -> £58k forgets one minor detail... The borrowed £75k. It's actually £100k -> £130k, it's just that you were heavily in debt in order to make that £100k investment.

Comparing apples with apples...
If you'd borrowed £75k to invest your £28k into the markets, you'd now have £78k. Plus dividends, obvs.

The only difference between a leveraged BtL and a non-leveraged one is that there's no mortgage monkey to feed with a non-leveraged one. Pretending anything else is accounting sophistry.

jimbog

Lover_of_Lycra said:

Crashy_Time said:

The great thing about shares is that you can dump them fast if things go South, you just can`t do that with property.

Sometimes it’s not worth dumping an investment when it goes south and crystallising a loss. Sometimes it’s better to weather the storm. What shares do have over property is liquidity for when you might need the money. 

When Covid hit some tried to liquidate their investments but had been blocked from doing so

grumiofoundation

Markneath said:

My btl’s have far out performed my shares the last 7/8 years on, rough example. House bought in 2016 for 100k
25k down, 3k fees etc now worth 130k.
Basically 28k is now 58k plus approx 120 per month after costs gives another 7k plus, so 28k down is 65k today.
BTL’s are usually poor investments with more expensive properties or when a lot of equity is held in them.
My shares are maybe up 50/60% in that time period.

Your (leveraged) BTL has actually dramatically underperformed the (leveraged) stock market and has not in reality significantly outperformed what you could have got just investing the 28k 5 years ago (unleveraged).

In fact just investing the 28k straight off would give you ~£47000 today* - not exactly a dramatic difference to your (on paper) BTL gains. 

The key with the BTL, as said above, is the fact you bought using debt is why you have more profit (on paper). Main advantage to BTL is the ability to leverage more easily than borrowing to invest in shares.

If you had borrowed 75k to invest in shares plus your £28k deposit you would now have ~£170,000 .* Assume interest of 2% per year on the 75k (£1500 per year, £7500 total) if you sold today you would clear £95,000 minus £7500 interest = £87500 

If you sold your BTL for 130k you would have £55,000 minus selling fees and capital gains tax. So based on taxable gains of ~ 20k would be between ~£48,000-52,000 depending on tax bracket.

(Have ignored taxes on investment portfolio since with capital gains, dividend allowances and ISAs should be able to avoid paying much, if any tax on 103k portfolio). But also ignored the fact that you could invest more tax efficiently via a pension.

I haven't included any monthly gains, assuming they will roughly be counterbalance by the fact you could have invested any money you have spent on costs in the last 5 years.

*Used VG FTSE All-cap Acc invested Oct 2016 (see graph in link). 
https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc

AdrianC said:

Markneath said:

My btl’s have far out performed my shares the last 7/8 years on, rough example. House bought in 2016 for 100k
25k down, 3k fees etc now worth 130k.
Basically 28k is now 58k plus approx 120 per month after costs gives another 7k plus, so 28k down is 65k today.
BTL’s are usually poor investments with more expensive properties or when a lot of equity is held in them.
My shares are maybe up 50/60% in that time period.

You could, of course, borrow to leverage market investments, too.

Yet nobody ever does that.

BTW, your £28k -> £58k forgets one minor detail... The borrowed £75k. It's actually £100k -> £130k, it's just that you were heavily in debt in order to make that £100k investment.

Comparing apples with apples...
If you'd borrowed £75k to invest your £28k into the markets, you'd now have £78k. Plus dividends, obvs. 

The only difference between a leveraged BtL and a non-leveraged one is that there's no mortgage monkey to feed with a non-leveraged one. Pretending anything else is accounting sophistry.

I guess people do indirectly. For example investing instead of paying off a residential mortgage ASAP.

GeordieGeorge

AdrianC said:

Markneath said:

My btl’s have far out performed my shares the last 7/8 years on, rough example. House bought in 2016 for 100k
25k down, 3k fees etc now worth 130k.
Basically 28k is now 58k plus approx 120 per month after costs gives another 7k plus, so 28k down is 65k today.
BTL’s are usually poor investments with more expensive properties or when a lot of equity is held in them.
My shares are maybe up 50/60% in that time period.

You could, of course, borrow to leverage market investments, too.

Yet nobody ever does that.

That’s because it’s far harder to do.

Your comments on leverage are strange, as leverage clearly does increase your returns (and lisses) relative to not using it.

robatwork

He's being sarcastic.

And somewhere, in a corner, Crashy is quietly sobbing. 

Crashy_Time

...with laughter...LOL. Just ignore leverage, it doesn`t matter.

Thrugelmir

Lover_of_Lycra said:

Crashy_Time said:

The great thing about shares is that you can dump them fast if things go South, you just can`t do that with property.

Sometimes it’s not worth dumping an investment when it goes south and crystallising a loss. Sometimes it’s better to weather the storm. What shares do have over property is liquidity for when you might need the money. 

Many investors become emotionally attached to their investments. Realising a loss is too painful to absorb. The question that needs to be constantly asked is whether the original investment case still holds. If it doesn’t bite the bullet. As there’s always better opportunities elsewhere.  

GeordieGeorge

Crashy_Time said:

...with laughter...LOL. Just ignore leverage, it doesn`t matter.

Yes it does. If you’ve £100k and invest it a 10% return makes you £10k. If it’s four times leveraged it makes you £50k.

Thrugelmir

GeordieGeorge said:

Crashy_Time said:

...with laughter...LOL. Just ignore leverage, it doesn`t matter.

Yes it does. If you’ve £100k and invest it a 10% return makes you £10k. If it’s four times leveraged it makes you £50k.

Leverage is double edged.