Nice video Tim, well presented. As a property investor and landlord I would like to point out that leverage is a HUGE advantage when purchasing a Buy To Let in terms of capital growth. So your example of the house purchase of £6,000 in 1971, may have only cost the investor £1,500 with 25% deposit. ROI is far more attractive now. This is a very interesting topic, and it's good to consider and/or invest in both in my opinion. Keep up the good work!
I agree. Having said that, property has additional costs such as maintenance and council tax. Shares on the other hand are very cheap to hold and the liquidity means you can move in and out easily. This could help you to multiply those returns. Either way, both are great investments!
If you are considering total returns for shares (i.e. capital growth and income) should you not do the same for property (i.e. capital growth and rental income). Seems a little unfair to ignore rental income (especially since the example assumes the property is purchased ungeared).
Hi Peter, I agree! The monthly rental income is the equivalent of dividends, to a degree, which can then be used to invest in shares or another property.
HI folks. Thanks for commenting. Just to address one point on whether, or not, you include rental income and on what basis. Part of the challenge is I am not aware of a total return property index, equivalent to say the FTSE All-Share total return index. And I suspect the reason for that is the lack of a reinvestment mechanism. Also, whereas the FTSE yield is known, and the same for all investors, that is not true of property. I know plenty of landlords who hasv enjoyed a decent net yield (after mortgage interest, void periods, maintenance costs and fees etc) and many others who are, at best breaking even or even losing money on a montholy basis. Also, income and capital gains on shares can be protected using wrappers such as ISAs -property income and gains cannot be in the same way. And yes, I assume ungeared property but then I also assume ungeared shares - apples and apples, as it were. Gearing will always introduce the scope to make gains but also magnify losses at the wrong time, as is the case now in London and other parts of the UK. So, whilst I agree that my examples don't factor in every aspect, equally it is not the case that if I were to do so the case for property would radically transform. Just my view of course - I accept other people may beg to differ but that is the nature of investing ultimately. Tim
Except now you have no house and you have an ongoing expense of say £800 a month, increasing with inflation and no home security. True, you could buy a property with cash outright which would save you a massive amount of interest. Let's say a you buy a property for 250k worth 300k. Over 25 years, you would have at least 150k interest. So you just saved 200k plus the extra 400k from equities. Having said that, it's not an either or situation, you could put your rent into a mortgage, so really you should be doing both if you're not a home owner (if rent and mortgage payments are similar).
Well one year on (February 2018) we saw stock market volatility and share prices drop, due to fears about increasing inflation and US Treasury bond yields increasing. I would expect some companies to keep up with inflation, e.g. supermarkets can charge more for food etc. So share prices should keep up with inflation. But it may be sector specific. Also inflation often brings higher interest rates, which may hit companies in debt. So also company specific.
Very interesting, and as someone who didnt invest in property, quite pleasing... thanks for the video.
Nice video Tim, well presented. As a property investor and landlord I would like to point out that leverage is a HUGE advantage when purchasing a Buy To Let in terms of capital growth. So your example of the house purchase of £6,000 in 1971, may have only cost the investor £1,500 with 25% deposit. ROI is far more attractive now. This is a very interesting topic, and it's good to consider and/or invest in both in my opinion. Keep up the good work!
I agree. Having said that, property has additional costs such as maintenance and council tax. Shares on the other hand are very cheap to hold and the liquidity means you can move in and out easily. This could help you to multiply those returns. Either way, both are great investments!
But debt is not free. What about interest repayments?
If you are considering total returns for shares (i.e. capital growth and income) should you not do the same for property (i.e. capital growth and rental income). Seems a little unfair to ignore rental income (especially since the example assumes the property is purchased ungeared).
Hi Peter, I agree! The monthly rental income is the equivalent of dividends, to a degree, which can then be used to invest in shares or another property.
I think they were comparing residential property which wouldn't have rental income. BTL investment vs. Shares may look completely different.
Came here to comment the same thing, a little deceitful!
I agree... It's a totally rigged comparison if you don't include the income from property
HI folks. Thanks for commenting. Just to address one point on whether, or not, you include rental income and on what basis. Part of the challenge is I am not aware of a total return property index, equivalent to say the FTSE All-Share total return index. And I suspect the reason for that is the lack of a reinvestment mechanism. Also, whereas the FTSE yield is known, and the same for all investors, that is not true of property. I know plenty of landlords who hasv enjoyed a decent net yield (after mortgage interest, void periods, maintenance costs and fees etc) and many others who are, at best breaking even or even losing money on a montholy basis. Also, income and capital gains on shares can be protected using wrappers such as ISAs -property income and gains cannot be in the same way. And yes, I assume ungeared property but then I also assume ungeared shares - apples and apples, as it were. Gearing will always introduce the scope to make gains but also magnify losses at the wrong time, as is the case now in London and other parts of the UK. So, whilst I agree that my examples don't factor in every aspect, equally it is not the case that if I were to do so the case for property would radically transform. Just my view of course - I accept other people may beg to differ but that is the nature of investing ultimately. Tim
Except now you have no house and you have an ongoing expense of say £800 a month, increasing with inflation and no home security.
True, you could buy a property with cash outright which would save you a massive amount of interest. Let's say a you buy a property for 250k worth 300k. Over 25 years, you would have at least 150k interest. So you just saved 200k plus the extra 400k from equities.
Having said that, it's not an either or situation, you could put your rent into a mortgage, so really you should be doing both if you're not a home owner (if rent and mortgage payments are similar).
You are better off investing in s&p500 and using that as a guide rather than the ftse100 which doesnt go anywhere really!!!
Isn't it like this that you only compare dividend stock to non rental properties ?
What impact does a higher inflation rate have on share prices?
Well one year on (February 2018) we saw stock market volatility and share prices drop, due to fears about increasing inflation and US Treasury bond yields increasing. I would expect some companies to keep up with inflation, e.g. supermarkets can charge more for food etc. So share prices should keep up with inflation. But it may be sector specific. Also inflation often brings higher interest rates, which may hit companies in debt. So also company specific.
You surely cannot leave out rental yield when comparing with shares, a tad biased methinks :p
Had you invested £6000 in s&p500 on that same date you would be a billionaire now!!
yes
very one sided view. "its not easy to reinvest rental income" ... yes it is .. buy another property. Figures completely skewed