another BTL vs shares dilemma

[Calcarius]

I own a portfolio of shares that is worth around £320k. It produces no income at the moment. I need to decide whether to sell it or rebalance it. It could achieve £XXXX PCM in dividend income"

Turning the OP's question on it's head, in this position would I swap for property? Not a chance, my exposure is big enough in my primary residence. Maybe rent out the house and use the income to build an income portfolio?

[petronius]

Thanks for all replies so far. Plenty of food for thought.

I agree that houses may be overvalued and that a house is a risky, lumpy, illiquid invstment.

REITs have been mentioned as a way to gain exposure to property market in non-lumpy way. I confess I am rather suspicious about these funds, as I fear that properties may not be bought and sold at the best possible price.

Who is going to check that this is the case? Unlike shares, property prices are not well defined at any given time and there could be room for inefficency and/or corruption.

Am I being paranoid on this?

[BusyBumbleBee]

Am I being paranoid on this?

Yes

[Alaric]

Unlike shares, property prices are not well defined at any given time and there could be room for inefficency and/or corruption.

Many REITs are not just traders or investors but property developers as well.

[colin]

Being a landlord is not making you a popular figure.

Tell me about it. The government is making me feel like a criminal, while I am pretty sure I am offering a fairly priced useful service to people who do not want to buy (for instance because they are not staying in the area for more than a couple of years). But this is material for another thread...

The Governments policy to discourage BLT was directed at those who use interest only mortgages to leverage a bet on increasing house prices.

[Alaric]

The Governments policy to discourage BLT was directed at those who use interest only mortgages to leverage a bet on increasing house prices.

Wasn't that most of them? Would it not be a relatively limited number of people with sufficient wealth to hold property mortgage free in addition to their own house?

[Howard]

Being a landlord is not making you a popular figure.

Tell me about it. The government is making me feel like a criminal, while I am pretty sure I am offering a fairly priced useful service to people who do not want to buy (for instance because they are not staying in the area for more than a couple of years). But this is material for another thread...

The Governments policy to discourage BLT was directed at those who use interest only mortgages to leverage a bet on increasing house prices.

This is horrendous! Has a Govt minister leaked this horrible plan to penalise overweight Landlords.

This news has spoilt my lunch.

Howard

[colin]

The Governments policy to discourage BLT was directed at those who use interest only mortgages to leverage a bet on increasing house prices.

Wasn't that most of them? Would it not be a relatively limited number of people with sufficient wealth to hold property mortgage free in addition to their own house?

petronius does not have a mortgage on his rental property.

[petronius]

The Governments policy to discourage BLT was directed at those who use interest only mortgages to leverage a bet on increasing house prices.

Landlords with no mortgages have been affected by recent changes too, including scrapping of "wear and tear" allowance, decreased CGT residence relief, stamp duty BTL surcharges.

There are talks of three-year minimum tenancies and regulatory burden on landlords is ever increasing.

There is no doubt that residential landlords are an easy target for governments wanting to be seen on the side of young people priced out of the house market.

If comrade Corbyn becomes prime ministers things may get pretty extreme, of course.

For me, this trend is certainly a factor against keeping the house.

[Alaric]

If comrade Corbyn becomes prime ministers things may get pretty extreme, of course.

Perhaps they might consider nationalisation of BTLs. Offer as compensation shares in a state sponsored REIT or REITs that would be a "national landlord". Such a Company would be subject to such severe State intervention and direction that its shares would likely plummet.

But a cottage industry of landlords holding just one or a handful of properties doesn't fit well with security of tenure for renters.

[tikunetih]

I haven't a clue whether houses or shares will go up over the next three years. But over the last five years, like many others commenting on Lemon Fool my widely diversified and neglected share/unit trust/IT portfolio has appreciated by over 50% (and over 20% in three years). I like Manchester a lot but I'm not sure many mid-priced houses there have appreciated that fast.

Of course, the last 5 years' returns are unavailable to someone purchasing today so such comparisons are of little help.

If anything, and all other things being equal, strong 5 year historic returns of an asset class would somewhat reduce that asset class's appeal to me over the coming 5 years because of the possibility of those strong returns being due to investors having become over enthused. Hence the OP's dilemma...

Lots of scope for regret in a decision like this, not least because the lumpiness of the asset to be sold (a single gaff) severely limits the scope to make the portfolio shift in a phased manner over time, which would otherwise be the obvious way to approach "regret minimisation".

[Howard]

I haven't a clue whether houses or shares will go up over the next three years. But over the last five years, like many others commenting on Lemon Fool my widely diversified and neglected share/unit trust/IT portfolio has appreciated by over 50% (and over 20% in three years). I like Manchester a lot but I'm not sure many mid-priced houses there have appreciated that fast.

Of course, the last 5 years' returns are unavailable to someone purchasing today so such comparisons are of little help.

If anything, and all other things being equal, strong 5 year historic returns of an asset class would somewhat reduce that asset class's appeal to me over the coming 5 years because of the possibility of those strong returns being due to investors having become over enthused. Hence the OP's dilemma...

Lots of scope for regret in a decision like this, not least because the lumpiness of the asset to be sold (a single gaff) severely limits the scope to make the portfolio shift in a phased manner over time, which would otherwise be the obvious way to approach "regret minimisation".

But to be fair, your selective quote misses out the following paragraph where I commented that in 2014 the experts were saying that the strong returns in the USA up to 2014 suggested that the US market had peaked. How wrong they were!

I think we all agree that whenever someone invests a large amount in any asset they are taking a risk that it might go up or down .

But diversification is likely to be the most profitable strategy.

regards

Howard

[tikunetih]

But to be fair, your selective quote misses out the following paragraph where I commented that in 2014 the experts were saying that the strong returns in the USA up to 2014 suggested that the US market had peaked.

But to be fair, that's because it wasn't relevant to my point.

[Howard]

But to be fair, your selective quote misses out the following paragraph where I commented that in 2014 the experts were saying that the strong returns in the USA up to 2014 suggested that the US market had peaked.

But to be fair, that's because it wasn't relevant to my point.

Sorry, I'm not sure what your point was. Is it that the US market is overvalued? That's a brave forecast .

The UK and US markets and the housing market in Manchester are very close to their all time highs. The OP surely wants to invest in something other than cash and a diversified portfolio isn't a bad choice. Every investment carries the risk that it might go down.

regards

Howard

[colin]

Some people are really successful landlords but they do have to work at it.

Outside of the public (social) housing sector, it's all a bit of a cottage industry really.

What you don't see is a publicly quoted company, presumably structured as a REIT, that both marketed itself to investors as a worthwhile investment proposition and also to tenants and prospective tenants as a "responsible" brand in the field of lettings. In the retail sector, the small local store owned and run by a family has been replaced to a greater or lesser extent by branches of the major supermarkets, Tesco, Sainsbry's etc.

Is this not what Grainger or PRS reit do ? M&G residential property fund and Hearthstone.

[jaizan]

The tax situation is unfavourable for BTL investors. Capital gains, tax on the rent, no tax relief on the interest etc. The regulatory environment is becoming less favourable.
Also, I think high returns are only likely if you have a leverage AND house prices go up. The latter seems less likely considering the high price to incomes ratio.

Meanwhile with stocks, you can put £20k into an ISA every year & another £20k if you have a partner. There is a capital gains tax free allowance and a modest dividend income allowance.
You don't have to invest in US stocks. You can start off with a mix of global investment trusts, including some more reasonably valued markets. You can park some in gold ETFs and there are other options like US Treasury ETFs. So no need to go all in on stocks just yet.

[DrGuid]

I'm in the (slow) process of selling my BTL. It's kind of making money, but it's nothing to get that excited about. I just get annoyed by the endless repairs plus I've let the lease get low which really complicates things.

I could have kept it but I just regard it as a huge pile of money that's locked up in a rather large basket.

My plan is to invest the money in funds, then use the interest to buy individual stocks. I don't think I have a great history of stock picking. However I've done well with Belvoir this year. I've been a landlord for 12 years so I know how much letting agencies siphon off from the rental market .