Reply to: BTL in 2011 - worth the hassle?

[Lockhouse]

The thing about BTL is after 20 years someone has effectively bought you a house and all you've had to do is put up a deposit and experience a bit of hassle. No brainer IMHO.

[GreenerGrass]

It's the leverage which really makes it for property though.

I know you can leverage shares but that is really risky whereas because property is naturally more long term and you're locked in the leverage isn't so bad if everything starts going wrong.

This is the crucial thing, leverage. Also its all very well socking £1000 a month into a SIPP when you are in a contract, but the moment you are out of one then you can no longer contribute. Most projections are unrealistic if based on you sticking in £1000 every month until retirement, so you have no idea what pot you will end up with even if you could predict the average % growth.

Meanwhile even if out of work your tenants would still be paying your BTL mortgage for you, well, two thirds of them....

[MrNoMotivation]

A problem with that is you`re throwing money away each time you climb the ladder (estate agent costs, stamp duty). Buy a big house early on that should last a lifetime and handle future family expansion. That comes with additional risks (high mortgage repayments when young), but I`d rather take that risk than throw 5-10% of the property value away each time the ladder is climbed another step.

I`ve bought a few smallish properties, moved on from each but kept each previous property that have formed my BTL portfolio. I don`t want to sell any

Personally I prefer other forms of investment but property should be part of a balanced investment portfolio.

I agree. I've gone from a 2 bed flat to a 4 bed semi. Next move will be a 4 bed detached with extension potential ie. a 5th bedroom with ensuite (loft conversion). After that it's the bungalow.

P.S I can't be bothered with holidays home or BTLs. Too much hassle with both and a holiday home ties you down to 1 place. Hotel or rent a cottage - I like to do as less as possible when I go on holiday.

[SuperZ]

just keep going up the property ladder buying bigger houses.
You get the enjoyment of a big house but then when you retire you down size to a nice bungalow.

A problem with that is you`re throwing money away each time you climb the ladder (estate agent costs, stamp duty). Buy a big house early on that should last a lifetime and handle future family expansion. That comes with additional risks (high mortgage repayments when young), but I`d rather take that risk than throw 5-10% of the property value away each time the ladder is climbed another step.

I`ve bought a few smallish properties, moved on from each but kept each previous property that have formed my BTL portfolio. I don`t want to sell any

Personally I prefer other forms of investment but property should be part of a balanced investment portfolio.

[BlasterBates]

Thats beause as soon as a share likes ropey it gets replaced.

Soon the fFTSE will be full of undertakers and supermarkets. And Indian restaurants where they guarantee clean spoons.....

probably
...yeah what happened to ICI, and the rest of 'em

[bobhope]

Property values can fall, but share prices can and do fall to zero. The downside in property is limited; you can of course limit the downside in shares but that costs and so the return is not so good.

Ho ho ho. You've obviously never looked at property in Detroit then.

[BrilloPad]

..a share can go to 0, but the Dow Jones or FTSE has never gone to 0.

Thats beause as soon as a share likes ropey it gets replaced.

Soon the fFTSE will be full of undertakers and supermarkets. And Indian restaurants where they guarantee clean spoons.....

[BlasterBates]

..a share can go to 0, but the Dow Jones or FTSE has never gone to 0.

Shares don't go to 0 overnight they just dwindle downwards gradually, at the same time other shares will be overperforming. If you have a 30 shares, then at least one of these shares will probably dwindle downwards to virtually nothing, but it still won't affect your performance.

I have 2 or 3 in my portfolio that are 90% down but then I have 2 or 3 that are up several hundred percent up. All balances out in the end and you'll find your performance is pretty close to the indices, even with the dogs, if you're diversified.

[TimberWolf]

Also, the long-term return on shares is purely historical, there is no reason to think it will continue, whereas with property there is reason to.

Isn't part of the reason for historical house price rises linked to the growing population density?

[expat]

Property values can fall, but share prices can and do fall to zero. The downside in property is limited; you can of course limit the downside in shares but that costs and so the return is not so good.

Also, the long-term return on shares is purely historical, there is no reason to think it will continue, whereas with property there is reason to.

There are several reasons to think that shares may not continue to perform as well as they have done, including:

• Most historical data on share prices covers a period when few people invested in shares, few saw them as a "safe" investment, and so they carried a "risk premium". It is suggested in some quarters that this is no longer the case.
• "Survivor bias": shares that collapsed and companies that went bust do not appear in long-term data because they're not there any more. Neither is your money, if you invested it in any of them. There are many such companies: few companies live as long as their shareholders.
• Most shares are now valued too high, because the baby boomers started to invest in them (directly, and through their pension funds). Now they are starting to retire, and they will want to divest themselves of this to fund their retirement. Demand for shares has boomed and will now bust.

There is also the importance of how you invest in shares. Most of us tend to overestimate our ability to pick stock, and not diversify enough. Warren Buffet did say that you only have to diversify if you are no good at picking stocks, Well, I'm no good, and neither are most of us.

Recent studies show that most shares lose money. About 75% lose money, but the remaining 25% make more than 3 times as much as the dogs lose. So you must be invested in the 25% of good shares, either by picking them or by diversifying enough that you hit all the targets; or you will lose.

Having said all that, property and especially tenants can give you a level of grief that the market can't touch. You invest, you watch a little, and you get on with your life.

[MrNoMotivation]

Read J.K. Galbraith's book on 1929 if you want to find out why not...

you don't need to read a book about it. It sounds like a silly idea anyway.

[mace]

It's the leverage which really makes it for property though.

I know you can leverage shares but that is really risky whereas because property is naturally more long term and you're locked in the leverage isn't so bad if everything starts going wrong.

Yep don't leverage shares. I lost thousands on CFDs in the last recession.

[BlasterBates]

got me thinking there, provided you have a longterm serviceable loan on your shares the risk would be the same. The only thing that makes the lending risky on shares is simply that it is short term.

hmmmm

The average return on shares is about 10% and on a house a few percent lower. But this average return only works over the longterm and if you invest over time, or just shove it all in during a crash.

No doubt shares are volatile I was about 50% down after the crash. However if you hold money back which you can shove in after a crash you recover this pretty quickly. I would call this a "crash" fund. I learnt this painfully after the Asian crash.

[DieScum]

I find having shares is easier, sometimes they don't pay their dividends

It's the leverage which really makes it for property though.

I know you can leverage shares but that is really risky whereas because property is naturally more long term and you're locked in the leverage isn't so bad if everything starts going wrong.

[MrNoMotivation]

just keep going up the property ladder buying bigger houses.
You get the enjoyment of a big house but then when you retire you down size to a nice bungalow.