To ask what is the point of investing in property?

[ImSuchABigIdiot]

AIBU to ask if it’s better to invest money in property than to invest money elsewhere? If yes, why? And, if people do invest in property, what’s the best way to do it to get maximum returns on the money you invest?

(Not a journalist, just a curious MNer who’s been on the site for a few years now under a few different names).

Bump.

It depends... House prices can go up astronomically but if there is a crash they can also loose their value very quickly and take years to regain it.

Buy to let is becoming less attractive because you no longer get tax relief.

If you buy a property to rent out you have to factor in costs such as repairs, or maintanance and sometimes you'll deal with tenants who don't pay rent or periods where the property is empty and youre still liable for council tax, etc.

However we have 2 rental properties with fantastic long term tenants - the value of the houses has increased by around 50% in 5 years (although I do believe a crash is due so this could be wiped out again) but the rental yield is around 8% of our investment which is far better than interest rates in the banks.... we could get more rent but as the tenants are amazing wed rather keep the rent low and keep them.

I've recently got out of renting out property and have sold my portfolio.

Yes, I was making a good return, and I made a large profit when I sold the houses.

But letting out property is not always simple and straightforward. In the end I just didn't want the hassle any more.

It also depends if you're going to need a btl mortgage or if you're buying outright. Interest rates can rise, they are very very low by the bank of England at the moment. people have got used to this but it cannot be guaranteed to continue forever.

The ARLA residential property surveys are a good guide to what's happening in the letting market.

One of the perceived benefits is the leveraged aspect of a mortgaged BTL investment. You could put say £50k deposit on a £200k property and then pocket the profit on the whole value of the property while the tenant pays the mortgage interest.

Obviously that approach worked best in the days of lower taxation and high property inflation rates.

Well this is contentious.

Whether or not property is a good investment depends on the ebb and flow of economic factors, some of which are in the control of governments, some are within the control of wealthy mega corporations and some of which are chaotic and uncontrollable.

People who have their money in property are relying on governments and corporations to continue to do everything possible to keep prices spiralling upwards - this ensures that property investors don't lose money and also keeps future generations poorer than their parents were at the same age. To ensure they don't lose money they need to make sure they vote to keep the oligarchs in power and oppose any change in terms status quo to help reverse the huge intergenerational inequalities that are growing in our society.

People who don't want the status quo to continue - or who have no hope of it ever stopping but don't want to share in the guilt - will put their money elsewhere.

So I can't answer the question without knowing what kind of a person you are, and how much you care about whether your future wealth might be at the expense of ensuring that future generations have little chance of a secure retirement. It will be long after you are dead that the main fallout from this disaster will hit - when 95% of those currently in their 20s reach their 90s with no assets as they have spent their whole lives renting because prices spiralled out of reach, and they didn't inherit anything as all their parents assets went on funding their own nursing home needs. There will be a very comfortable top slice of the population with plenty of money, and utter hell for everyone else. Personally I don't want to be one if the creators of that distopian misery so I invest in managed funds providing investment in new business enterprises which have the potential to boost our economy rather than trying to ride on the gravy train on growing the bubble by artificially restricting property supply beneath the continuing demand.

For us (we own and rent out two properties) it came down to a few things.

1. We had money / a windfall to invest. We looked around at where else to invest and there was nothing: savings accounts etc giving like 1% interest. If we’d put it there, it would have lost value the longer we left it! Investing in property would give us a regular - if variable - return plus the capital increasing over time. We bought in a location we know well, and do whatever we can to make the properties attractive.

1. See above : we were able to buy outright rather than get a mortgage. So any money we make is ours immédiately.

1. The money we invested wasn’t needed for anything else. Buying the properties didn’t leave us short anywhere else.

1. Similar to above, we don’t rely on the rental income. A big chunk is invested long term (tracker fund) so we don’t even see it, and the rest covers repairs / maintenance, and a bit of surplus for treats. That was really important for us. We keep the rental money completely separate from our daily income / expenditure, we don’t count it as income etc. We usually do make a profit each year, but that’s not the real aim - which is a slow but steady investment in our tracker fund plus the increasing capital value over the long term (25+ yrs probably).

1. We pay a good agent to manage it. It’s more expensive than doing it ourselves, but we don’t live in the UK and it’d be too much hassle to be dealing with all the admin and finding tenants etc. We have very little to do with the daily management of the properties.

So that’s how we make it work. If we’d had to get a mortgage, if we’d had to rely on the income, if we couldn’t afford an agent to handle the day to day... we would have done something else.

I too was going to say, it depends why you are doing it, and 'what with'.
there's a big difference between buying a property with "spare" money you have, and borrowing money to buy property.

People I know who have bought a property to let out, include people in the forces, and a Methodist Minister. It makes a lot of sense as both families were in jobs where they had to up sticks and leave each area they lived in, every few years, but had accommodation provided in their job. It then made sense for them to have an investment that was going to keep pace with the price of property, so, when they retired / left those jobs, they had either a home to move in to, or a home to sell, to buy the home they were going to live in. Neither family were looking to "make money" as such, just have somewhere to live when they retired.
I then know of others who have got together with another person who also owned their own flat, and they chose to let one out rather than selling at that time.
It does depend so much on your tenants though. As pp has said, you are in a very different position if you have a long term, reliable tenant. Otherwise it can be a chancey game.

bogstandard that's a great breakdown there.

But also some articles recently said stocks and shares have beaten property over long term.
I personally like bogs idea of using that money to pay into shares fund and dripping it in too.

Don't compare bank rates 1% with isa rates stock etc which have much higher returns

Any thoughts on buying a run down property to do up?

My friend has a property portfolio and gets a much better return on it (something like 15-20% very reliably) than he would with any other fund. Part of the reason he makes such a good return is he has a lot of liquid capital so he's able to buy houses that need to be sold quickly and gets a very good price for them. Renting is still a hassle and there'll be some month he makes a loss if tenants move out and there's more damage than their deposit or the letting agent doesn't notice and charge for damage). However he has lots of disposable income and a large property portfolio meaning he's well hedged and can tolerate a few months of loss if necessary.

There's a lot of "dumb flow" (I don't like the term but it's the one used in financial circles) in property. Essentially if there's an easy way to make money lots of people will do it until it becomes saturated and no longer profitable. If you want to make money out of property you have to have something that most people don't. That could be a lot of liquid capital (so you can buy a house that needs to be sold quickly and won't be paying a mortgage), a lot of knowledge (which house is undervalued etc.), a lot of skill or contacts (so you can get the building work done cheaply etc.). If you have none of those things I would probably proceed with extreme caution.

What % do you pay for the agent BogstandardBelle?

We bought our rental properties in London many years ago, now mortgage free. We pay an agent to manage. It’s one part of a diversified investment strategy.

I can’t see how buying a single btl property with a large mortgage would be profitable now. But there are still people doing it I guess.

I agree that it depends on how the rental property's funded. I wouldn't have borrowed for a BTL but bought mine with an inheritance because there was simply nothing else which would give the same return

That said, I wouldn't have wanted to deal with potentially tricky tenants either, so I rent to my son in a situation which is reasonably bombproof

We have rental properties that we've owned for many years. We also have a share portfolio and invest long term in shares that we have selected for growth, not dividend. If we had any money to invest at this point I wouldn't personally buy property, especially with the possibility of a Corbyn government.

Sticks & Shares are probably the nearest performer to property (London & SE)

At any given time, if you’d invested 5k per annum in the FTSE 100 over 20 years, a total outlay of 100k, you’d be a millionaire.

Stocks even

Unless you are buying in a booming market under value with potential for improvements or a very high rental yeild it is idiotic to invest in property. It costs money to maintain and is often a bit of a headache. If you are serious about making money out of your investments you should be looking at things that don't attract capital gains tax like art of jewelry or the stock market (obviously there are times when you would hold off buying stocks but as a general rule this is the best way to generate wealth).

At any given time, if you’d invested 5k per annum in the FTSE 100 over 20 years, a total outlay of 100k, you’d be a millionaire

Really? That sounds unrealistic? I know you get growth and dividends but if you look back 20 years from now, the FTSE 100 has increased by about 50%, so I can't see where the 10x growth has come from.

Lots of people lose huge sums of money being landlords. You really need to have your wits about you and a hefty dose of luck.

BarbaraofSevillle the FTSE 100 index does not factor in dividends.

As a default, I really try to steer people away from investing directly into residential property. This is for a number of reasons:

1. Tax. There are some allowances, however direct property investment is inefficient. You purchase it from taxed income. Rental income is taxed at you marginal rate (often 40% or 45%). Upon disposal you are liable to CGT. On death it forms part of the estate for IHT. ISAs, Investment bonds and pensions are generally far more efficient from a tax standpoint.

1. Its hard work. You are responsible for upkeep, repairs, admin etc. If you delegate this to an agent you reduce the yield.

1. Liquidity. Buying and selling is both timely and expensive. If an unexpected emergency occurred, i.e. a partner became ill or you needed to buy a new car, you cannot simply sell a room. Its the whole thing or nothing. Disposal can take months and you will incur a large amount of cost and hassle.

1. Risk. People often associate risk with stock market investments. However there is a great deal of risk with direct property investment. Bad tenants, interest rate rises, macro property climate, localised issues, building faults, not being able to sale... it is definitely not without risk, potentially a greater risk than a balanced portfolio of shares.

1. Gearing. This is essentially when you borrow to invest. If someone told you they were borrowing £250,000 at 3% APR to invest in the stock market, where their invest could fall by 20% on day 1 you'd think they'd gone mad. For some reason people think this is a good idea with property!

I have a couple of moral objections around investors pushing up pricing and hoarding property, i feel that a house is a home, and not a place to put spare cash.

Property can bring some excellent returns and people have made themselves very wealthy as a result, however given the work involved i'd suggest an investor be an expert, do tons of research, and have a good portfolio of investments in other asset classes before considering BTL.

And in case anyone mentions it... no, it's not a good time to get into Bitcoin. Not now, not ever.