I’ve said it before and I’ll say it again: there are really only two types of investor, whose who can’t time the market and those who know they can’t on the market. In 2006/2007 there were so many people out there borrowing money and investing in things that they didn’t understand and I can see the same happening now.
With the pandemic where there are lots of small investors who are day trading and they’ve come into the market very recently and they’re effectively speculating. Apps like RobinHood, eToro and Trading 212 are becoming more and more popular. With all the new financial stimulus to be expected for property investors in tomorrow’s budget, and as I said, there has been a lot of the government support and when the furlough scheme and grants come to an end there is going to be a day of truth. So I just think we need to be mindful of that.
Residential property for example has been going up a hell of a lot and clearly there’s lots of inflation coming through the system. I talked more about this recently in my blog post on Bitcoin and Game Stop.
Since 2009, interest rates have been at an all time low and whilst this is good news for those with mortgages, it makes the task of savings and investment that much more tricky. The traditional route of placing funds in a savings account is a very slow and drawn out affair these days, especially as high street banks are offering paltry rates of between 5-8% per annum.
This has led many investors to look elsewhere for investment opportunities, with the most common being the stock market and the tried and trusted option of dealing in property. This naturally raises the question of which is the most profitable option out of the two and which offers the best chance of a meaningful yield.
We look now at the question in greater detail to hopefully provide some answers.
The Property Option
30 years ago, the average house price in the United Kingdom was just over £40k. Even just a cursory glance at today’s market will tell you that things are much different now. As of March 2018, that average figure had risen to an eye watering £227k – representing a 500% increase since the late 80s and whilst this should suggest that significant profits are there to be made, the future of the housing market is by no means certain.
House ‘Flipping’ v Buy to Let
There are still healthy profits to be had in the current market by property ‘flippers’, but the wisdom of doing so would seem to be dictated very much by which area of the country you’re buying in. Areas like Cheltenham, Bournemouth and Brighton enjoyed increases as high as 13% in 2017, whereas as some towns in the North of England and Scotland have seen single figure drops during the same period. It would appear that investing in bricks and mortar is still a good idea, so long as you choose your location well.
When we look at the buy to let market, things look quite promising. Lack of affordable housing, combined with the fact that average wages are growing particularly slowly, mean that rented accommodation is in high demand – something that doesn’t look like changing any time soon.
A recent study predicted that by the end of 2021, almost a quarter of all households in the UK will be on a rental basis, which if it were to come to pass, would represent a 20% increase on how things stand now. This potentially indicates that the best options for property profits may lie in the buy to let sector.
Associated Costs
There are, of course, many other factors involved with buying a house that need to be factored into any decision to invest in one. There’s legal fees (which can be quite considerable), capital gains tax (something that you pay on profits made on selling a home that’s not your primary residence) and the ongoing costs to maintaining them.
Add into the mix all of the mortgage repayments and the costs of renovation and you soon see that you really need to do your sums before you commit to anything. You don’t want to go through the whole process to find that you’ve made a fraction of what you intended.
The Stocks and Shares Option
Entering into the world of investing in shares does not necessarily mean that you have to become a trader who buys and sells shares minute by minute. There are other options, which are much more stable and don’t rely so much on the share price increasing to provide the required profit.
When you own shares in a company, you are entitled to dividends, which are essentially your share of the company’s profits for that year. The equity income it provides can be quite considerable, offering a consistent and stable yield, year on year.
As with anything however, the companies you choose to invest in will determine the level of success and the profits you make, which is why seeking out the assistance of a good financial advisor or an equity manager, is a really good idea. Not only will somebody with industry knowledge be able to point you towards the best companies to invest in, but will also help you manage your portfolio in the most tax efficient way possible.
The Verdict
We’d love to tell you that there was one clear winner between investing in property and investing in shares, but it would seem that neither offers any kind of guarantees of profit. That’s not to say that it’s a bad idea, as there are still some fantastic opportunities out there to achieve meaningful growth.
The important thing to remember is that both need to be approached in a considered and informed way and both benefit from professional assistance. Of course, there’s nothing to stop you doing both, so long as the properties and shares you buy are properly researched and backed up by the advice of someone who’s accredited and really knows their stuff.
Whichever you end up choosing, we wish you the very best of luck.
Something else worth considering is Property Bonds which I went into more detail in in my recent blog post:
