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Buy to Let vs Share Portfolio

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
appleyard
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Buy to Let vs Share Portfolio

#212414

Postby appleyard » April 3rd, 2019, 3:16 pm

I'm new to this board, but very excited about joining - seems like a very astute investor community!

I wanted to share an investment challenge I've been mulling for a couple of years now - as I really have had some conflicting views from friends.

Scenario: I want to make a large investment, but investing in a large share portfolio or undertaking a buy to let. The source of capital is 100K of cash, and 400K borrowed on my house on a 60% LVT mortgage. The mortgage would be a 10 year fix 2.35%. I have a reasonable on-going/secure income to cover the mortgage, and I am 45 years old, and my appetite for risk is medium/high. I am married, hence technically can spread investments across 2 GCT allowances etc. I have reasonable pension provision, but have yet to use ISA's in any serious way.

Traditionally in the past, it seems most people have invested in buy to let. Historically, this investment strategy has proved very steady - with reasonable income and capital growth. Personally, I hate BTL - as the government has significantly ratcheted up BTL disincentives.....extra stamp duty, CG Tax, Income Tax off-set reduction - to the point when combining with tenant hassle - it begins to feel un-investable. But most people you speak to - still think this a sensible option!

But when you mention the same investment approach to shares instead of property, then most people think you are completely bonkers. My approach would be to buy 10 sensible Capital UK & World Growth Investment trusts / funds / ETF's (5 investments each between me and my wife), capital growth focus as income would be taxed at 40%...and then bed & breakfast them each year to crystalise gains/losses. And as you progress through the 10 year investment cycle, to place some of the investments into ISA's if and when limits allow. So by the end of the 10 years, perhaps 40-60% would be protected from tax.

So is the above approach to pursue a share portfolio just bonkers? Of course another approach is to simply to do nothing. Thoughts?

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Re: Buy to Let vs Share Portfolio

#212417

Postby Alaric » April 3rd, 2019, 3:24 pm

appleyard wrote:So is the above approach to pursue a share portfolio just bonkers?


With a share portfolio, everything is proportionate, so there's no need to borrow to invest. Just invest most or all of the £ 100,000 in cash. At 2*£20,000 a year, it's not going to take so long to get it all tax sheltered in ISAs.

Borrowing to invest in property can make sense given the lack of volatility of house prices. If you invest £ 100,000 in shares, a market downturn could knock £ 20,000 off the value, hopefully temporary. If you invest £ 500,000 by borrowing £ 400,000, a 20% loss takes you down £ 100,000. Many would regard this as a risk too far.

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Re: Buy to Let vs Share Portfolio

#212470

Postby Urbandreamer » April 3rd, 2019, 6:48 pm

Property is a very lumpy investment.

You can't invest your surplus sallary in property. All that you can do is borrow to initially buy the property and pay off mortgage with surplus income.

You are also making a large marco-ecconomic bet when you buy property. You are betting that employment in your given area will not drop. If it does then peoples ability to pay either rent or to purchase the property from you will drop too. There is maintenence to consider and the quality of tenents. You can't reduce you holding without selling an entire property or re-mortgaging.

With "shares" or rather equities you can invest small amounts regularly. You can also spread your risk by spreading your investment across multiple industries and geographies. You can even sell part of your portfolio is you need to.

I think that your intended approach to equity investment makes excelent sense, if you forget the borrowing. Just one point, income from investments held in an ISA would not be taxed at 40%. Dividend income from investments held outside an ISA would be taxed at about 38% after your dividend allowence I am told.

I honestly don't understand why so many people regard owning a part share in a company as akin to gambling. They often seem happy to complain about the money such companies pay their owners.

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Re: Buy to Let vs Share Portfolio

#212483

Postby BusyBumbleBee » April 3rd, 2019, 7:41 pm

First, Appleyard, welcome - yes there are some very good folks on here.

BUT the first thing you must do is open ISAs for you and your spouse before the end of this tax year. You don't have to decide what equities or funds to buy - just stash 40K away from the tax man before FRIDAY midnight. If you can't find a broker to do this go straight to http://www.youinvest.co.uk and follow their rules - you can even put the money in using a debit card.

YouInvest is well respected by Fools so you won't go far wrong and you need to move quickly to beat the deadline without thrashing around looking for perfection.

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Re: Buy to Let vs Share Portfolio

#212489

Postby Howard » April 3rd, 2019, 8:53 pm

We can't predict the future, so no one can give you definite advice.

I can share a historical perspective as I have built a significant share/IT/unit trust portfolio over 30 years in ISAs and a SIPP. I have chatted to acquaintances who have invested in buy to let. One acquaintance owns many houses which he manages very well.

It has never occurred to me to invest in btl because I would not be happy dealing with the issues which might come up with tenants. This is not a criticism of landlords but an observation that those who deal with btl have to be strong minded/cynical and perhaps a bit unsympathetic to make good returns.

With a share portfolio one can buy and sell very easily and not too many emotions are involved (apart from a couple of times where my portfolio has dropped in value by an eye-watering amount). I have on occasion decided to realise a significant cash sum by selling shares and it is in my bank account within three days. In contrast, a friend is trying to sell a house at the moment and despite price reductions, it hasn't sold in six months.

Share prices have been more volatile than house prices generally over the time I've been investing but the returns overall have been fairly similar. I've read that house prices have risen about 7% a year since 1980. With a fairly boring portfolio of shares I have achieved a slightly better performance and the returns have mainly been tax free because it's mostly in ISAs.

So summing up. I'd go for a share portfolio and follow busybumblebee's advice and put 40k immediately into share ISAs. Iweb is another very good low-cost broker where you can pay in using a debit card.

Good luck in whatever you decide to do!

Howard

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Re: Buy to Let vs Share Portfolio

#212509

Postby midgesgalore » April 3rd, 2019, 11:28 pm

Hi appleyard

Thanks for posting your thoughts. I have become an accidental landlord for various reasons however the properties were never purchased as buy to let. I agree with the concerns in the posts above so far. The reason I didn't sell the properties, after the original purpose didn't apply, was slightly negative equity so I made some money letting them out. I am more interested in income rather than capital gains so am happy to keep the letting sideline going for now.

As with every investment, owning property has its own cost of ownership in maintenance, insurance, landlord license/registration (Scotland), letting agent commission, income tax, and these are only some of the annual costs. Other costs can crop up ... but I will not take that any further.

I also have an equity investment portfolio and decided I could get good steady property related income from a collection of REITs, namely Tritax Big Box (BBOX) Regional REIT (RGL) and Warehouse REIT (WHR) accounting for about 6% of my HYP. These are in ISAs, for tax purposes, and since the original investment amounts are equal the average combined forecast yield is around 5% with no need to worry about gaps in tenancy. They also have decent capital gain in the short time I have held them although probably "Brepressed" for now - but isn't everything?

I might be better selling my properties and investing in global equities but the bricks and mortar properties at least diversify from equity market risk. Not sure if I would start out with buy to let as an investment goal, probably not.

midgesgalore

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Re: Buy to Let vs Share Portfolio

#212530

Postby Pastcaring » April 4th, 2019, 2:51 am

I live in a different country,however.

I started off in property.I was sold the same product,compounds at 7% annually over the long term,that turned out to be reasonably accurate,however with inflation also going well since around 1980 the real return is not very good.For example if inflation has averaged 5% over those years then your real return is 2% compounding,not good.

Check that by going to your local library,pull out a newspaper from 1980.Look at the price of a house then.Say 4 X average income.Look at the price of a house today 5 possibly 6 X average income ,I don' t know.Across a close to 40 year investing term a growth of 25. -- 50% in real terms.I don' t understand why people think property is a good investment.The high costs of maintaining,modernising,insuring etc.I quickly gave up on property once I worked that out.I still own the properties,more of a social investment than monetary,I don' t want the people that live in them to be cast onto an uncertain rental market.They look after the property ,I look after them,they get two weeks rent back at Xmas to help them.

Financially they were an awful investment,they are paid off,the return after all holding costs might be in the region of 1.5% ,then I pay tax on that.They are very illiquid.

The illusion of house prices not moving much is because they are not put up for auction every day,shares are.

The good news,I leveraged off them,as you plan on doing,what a powerhouse.I would prefer longer than 20 years but that is usually long enough.

I would have no problem putting in 500 K if you are comfortable with that,try to pay it back as quickly as possible.Do be aware that shares are VERY liquid,this means very volatile,50% can disappear in a matter of weeks or months.Usually it will come back with more,usually not in weeks or months .

Compound your 500k at 7% and 2 million in 20 years.As you can reinvest dividends the 7% looks low,but it can happen

The return in income,check out what rent is in your area,with a 2 million property portfolio what return would you have after all holding costs

Check out what a 2 million share portfolio returns,no holding costs.

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Re: Buy to Let vs Share Portfolio

#212531

Postby Pastcaring » April 4th, 2019, 3:44 am

Did a bit of checking,accumulation index for Australia is 66,000. Dividends are coming in now so it will rise.Ticker is AXJOA.

Means if you put $1000 in in 1980 then you have $66,000 today.There are holding costs for an index fund,and they really mount up over the years.Shall we say the holding costs over those years were $26 K just to make it round numbers.

Every $1000 over close to 40 years is now worth $40,000.
A property in 1980 cost around $40K,and is now worth around $400K,probably a bit less but let' s make it easy.
Gross yield from rent is around $18 K annually,call it 4.5% gross.Take off all those holding costs and it is basically rubbish.

The 40K invested in the accumulation fund is now $1.6 million,unless I have the decimal point in the wrong place.Gross yield on that is around 7% and net yield of say 4.5%.Complexity ( for me simplicity ) of the Australian taxation system

Yield from property virtually nil,capital growth a bit more than inflation would be reasonable.

The net yield on the index means just that,a bit of tax will be paid on that so call it a net yield of 4%. 4% of 1.6 million is 64K.

The $64 K is roughly what an average Australian would take home after tax annually.

Think for yourself,and find out what long term returns are in the UK.

You can' t reinvest rent into a property,you can reinvest dividends into shares,it makes a huge difference over a long period of time.

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Re: Buy to Let vs Share Portfolio

#212534

Postby Pastcaring » April 4th, 2019, 4:33 am

Forgot the nominal / real returns

$40K in 1980 was around 3.5 to 4 years average annual income.Average now is $80 K per year.So a house that cost that much then is worth around 5 years wages now.Probably a bit less ,we are in a real estate slump at the moment.
Not a huge return in the grand scheme of things.

The accumulation index now returns basically average annual income,and is 20 years average wages.

All those years ago I aimed to replace my annual income with dividend/ rental income of exactly the same.

Thankfully it all worked out far better than that,and, just like you I was leveraged up far greater than 99% of people would be comfortable with.

Vitally important to reduce that leverage as quickly as possible

Understand that leverage speeds things up tremendously,you' ll get rich quicker,or you will go bankrupt quicker.

I always worked on 50% equity and 50% leverage.That does change as prices rise and fall.2009 immediately springs to mind,sometimes I wonder how I got away with it..

In retirement I think I am running at 85% equity.I never check.Just means every million produces 70K in income.The costs are around 6K ,150K X 5. odd %.

I am reducing that debt very quickly now with a large excess of income and some of that going into DRP plans.
I spent 40 years as a duck,all calm and serene on the surface,underneath,wow,look at the work going on there.

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Re: Buy to Let vs Share Portfolio

#212583

Postby Hariseldon58 » April 4th, 2019, 9:57 am

Well done both at various times.....

Domestic property is a hassle, if one property goes sour then it has a huge effect on your income stream, given that you are likely to have 2 to 4 properties. If two are in trouble ugh.

The trend is against you, BTL had a good run, its unpopular with Government and the public, we have higher CGT rates, tough regulations on letting, more licensing and I can't see S21 lasting, rules that apply to Scotland and Wales are very likely to come to England. Tough rules on borrowing. Its not like property is cheap now.....

An industrial unit has done me proud ! Yield is 9%, 10 year lease no break points, the tenant is a couple, they are signed up as individuals with a decent house, good trading history and expanded into my unit, not a company, they appear solid. They are responsible for maintenance etc, its zero hassle. Tenant before rang me about a small leak, I suggested a local builder, there was silence until I explained how it works...

Borrowing to buy equities, seems a no brainer..I have done it a couple of times, it may work out well but events occur....I washed my face both times. I personally would be cautious of borrowing to invest, patient investing without borrowing worked well for me....

Be aware of a get rich quick plan. The downside is felt 10 x more than the upside

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Re: Buy to Let vs Share Portfolio

#212598

Postby tikunetih » April 4th, 2019, 10:39 am

appleyard wrote:I'm new to this board, but very excited about joining - seems like a very astute investor community!


If not already doing so you should also be reading the MSE "Savings & Investments" and "Pensions, Annuities & Retirement Planning" forums, plus whatever other additional sources (such as a few sensible blogs) you have time for, to obtain a more rounded view, as opposed to a somewhat "house view" that may be present in one forum or another.

appleyard wrote:I have reasonable pension provision, but have yet to use ISA's in any serious way.


That immediately rings some alarm bells - reasonable is much better than poor, but not as desirable as good or excellent. Use of ISAs to complement pension provision can be very useful, depending on you personal goals (eg. planned retirement date) and circumstances (eg. other savings, income level, partner's situation, pension lifetime allowance situation, etc, etc) but you should be doing so as part of a thought-out plan that maximises tax-efficiency, or consciously chooses not to do so in order to prioritise something else over and above that tax-efficiency.

I suggest you look again at your pension provision to make sure you've arranged this aspect of your investment affairs as well as you can do, ie. better than reasonable, and don't just assume you've already adequately ticked the 'pension' box.

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Re: Buy to Let vs Share Portfolio

#215600

Postby appleyard » April 17th, 2019, 10:28 am

Thanks to everybody for some brilliant advice, the good news is that I managed to get my 2018/19 ISA allowances sorted. And I've also managed to top up my pensions. But now need to properly think through taking the 10 year fix at 2.35% - I've ruled out buy to let. And if did invest - what investments would give a sensible 6-8% annual returns over a period of 10 years - I'm happy to accept some years will be negative, and some years may be 8% plus

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Re: Buy to Let vs Share Portfolio

#215669

Postby BusyBumbleBee » April 17th, 2019, 1:52 pm

appleyard wrote:Thanks to everybody for some brilliant advice, the good news is that I managed to get my 2018/19 ISA allowances sorted. And I've also managed to top up my pensions. But now need to properly think through taking the 10 year fix at 2.35% - I've ruled out buy to let. And if did invest - what investments would give a sensible 6-8% annual returns over a period of 10 years - I'm happy to accept some years will be negative, and some years may be 8% plus


I am really pleased you have got the money in an ISA and topped up the pensions. Well done.

I tend to invest in two ways -

1. Venture Capital (don't try this at home is the warning - as it's high risk)
2 Income stocks which I regularly trade - these might be what you want to look at.

These are what I hold at the moment

REITS : AEW, NRR, RGL, IHR
Green Infrastructure Funds : BSIF, FSFL but have just sold JLEN, NESF, TRIG and I rarely if ever buy or hold UKW or GSF
Others I hold for income are RMDL and SQNX, VSL and WAS1 -
Surprisingly (in the light of 1) above) also CYS and CRWN

If, after looking at them, they interest you we could discuss in more depth later but this portfolio returned 12.8% last year and 41% over the past three years.

I would look at the Green Infrastructure shares first.

kind regards - BBB

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Re: Buy to Let vs Share Portfolio

#215679

Postby YeeWo » April 17th, 2019, 2:38 pm

- I'm not wild-keen on borrowing to Invest, but obvs your decision!
- BTL in the UK seems a Silly Idea in a personal capacity for the Tax Implications stated above. Again I'm not wild-keen on BTL but if-you-must, would a Limited Company not be the logical way to do this?
- Holding Liquid Assets (Stocks, Fixed Income) in a SIPP seems a rational approach. On the basis you would get immediate Tax Relief of up-to 45% and the proceeds of your SIPP Should be able to accessed from age 57 it seems a great idea to me. £40k per annum into a SIPP would, mathematically at least, make the most sense again if-you-really-must borrow to invest........

Good Luck!!

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Re: Buy to Let vs Share Portfolio

#215853

Postby PrefInvestor » April 18th, 2019, 9:26 am

Hi BusyBumbleBee

Regarding your comments in a previous post:-

BusyBumbleBee
Green Infrastructure Funds : BSIF, FSFL but have just sold JLEN, NESF, TRIG and I rarely if ever buy or hold UKW or GSF


I hold most of those Trusts, what was your reason for selling JLEN, NESF, TRIG if I might ask ?. Personally I just topped up on TRIG with the recent Open Offer and my shares obtained from that at 114 are now at 121+ ?.

For some reason my preference shares are doing really well too (BSWA, GACB, RAVP, RSAB & STAB) all up a lot over the last week. RAVP & STAB in particular have done well.

Anyway ATB

Pref

PS Tried to use the quote feature but couldnt work out how to use it, as will be apparent from the above. In the end I just copied and pasted your text between some quote tags.

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Re: Buy to Let vs Share Portfolio

#215860

Postby tjh290633 » April 18th, 2019, 10:02 am

PrefInvestor wrote:PS Tried to use the quote feature but couldnt work out how to use it, as will be apparent from the above. In the end I just copied and pasted your text between some quote tags.

It's simple. You just click on the " button top right of the post you wish to quote from. That puts the tags in and makes the first one [ quote="PrefInvestor" ]. Then you can edit it down to the bit you want.

Have a try.

TJH

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Re: Buy to Let vs Share Portfolio

#215869

Postby JohnB » April 18th, 2019, 10:23 am

Right choice about BtL for you. I'd not borrow to invest, and observe that most people like the glow of living in a paid-off house than using its value to leverage the stock market. You need to buy Tim Hale and Lars Krojer's books and decide where you stand on the great passive/active debate, and pick a broker with the right fee structure for you, understanding the different charges that can apply for funds/ETFS/ITs in SIPP/ISA/unsheltered. You need to understand tax, on pension lifetime allowances in particular at your age, and judge how a Labour government might change things.

And you need to binge-read the articles on monevator.com

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Re: Buy to Let vs Share Portfolio

#215909

Postby PrefInvestor » April 18th, 2019, 11:59 am

Hi TJH,

tjh290633 wrote:
PrefInvestor wrote:PS Tried to use the quote feature but couldnt work out how to use it, as will be apparent from the above. In the end I just copied and pasted your text between some quote tags.

It's simple. You just click on the " button top right of the post you wish to quote from. That puts the tags in and makes the first one [ quote="PrefInvestor" ]. Then you can edit it down to the bit you want.

Have a try.

TJH


OK Ive got the idea now.....

Thanks

Pref

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Re: Buy to Let vs Share Portfolio

#216246

Postby BusyBumbleBee » April 19th, 2019, 5:41 pm

PrefInvestor wrote:Hi BusyBumbleBee
what was your reason for selling JLEN, NESF, TRIG if I might ask ?. Personally I just topped up on TRIG with the recent Open Offer and my shares obtained from that at 114 are now at 121+ ?.

They were looking a bit toppy - at the extreme of their range and as they all like to raise money now and then - which severely impacts the SP - thought I would get out and wait for the price to drop.

If I get time over the weekend I will open a thread about investing in the Green Infrastructure funds and populate it with some figures I work from

kind regards - BBB

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Re: Buy to Let vs Share Portfolio

#216282

Postby PrefInvestor » April 19th, 2019, 11:36 pm

BusyBumbleBee wrote:They were looking a bit toppy - at the extreme of their range and as they all like to raise money now and then - which severely impacts the SP - thought I would get out and wait for the price to drop.


Well UKW and BSIF are getting a bit pricey maybe, but not so sure about the others - especially JLEN ?. Yes they all like to raise more capital but (as with UKW and TRIG just recently) when they do so they generally set the price as only a few pence less than the current market price. Obviously holding often also provides guaranteed access to any new issues which can be useful for topping up,

ATB

Pref


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