Property or the Stock Market?

THE QUESTION

Is it really worth the drama of owning a BTL and having 20% returns over 3 years when the Stock Exchange in my pension is Tax free and has higher returns? 

Or the drama of searching for a property, conveyancing paperwork, Stamp Duty penalty, touch-up renovations, eye balling for a good tenant, regular maintenance, annual HMRC tax returns, the risk of rent arrears, re-mortgaging paperwork, Capital Gains Tax, the risk of tenants trashing up the place, dealing with lazy Estate Agents, dealing with calls from Estate Agent to approve repairs etc.

THE ANSWER

The obvious points you are missing is leverage and to a lesser extent downside risk, put simply –

•  If you invest £100,000 in shares and you get a 20% increase - now your investment is worth £120,000.
•  If you invest £100,000 in a property as a 25% deposit, a 75% mortgage allows you to borrow £300,000 enabling you to buy a £400,000 property. A 20% increase in a £400k property is £80,000 - now your original £100,000 investment is worth £180,000.

Property is the only investment that allows you to leverage the sum invested in this way.  Higher returns and a tax advantaged status have a hell of a way to go to match that.

Downside risk with property is mitigated by the fact that the land property is built on is a finite resource. It can never be worthless, even if it is worth less over a defined time frame; it always recovers its value.

Conversely shares in companies can become worthless, there is no inherent base value in a company and its value derives from its performance.

You accurately portray the difficulties that can be encountered in property investing, but a quick glance at the Sunday Times Rich List shows the majority of entrants having property as their primary or secondary source of wealth.  This should tell you all you need to know about property as a viable investment.

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