Invest or invest in real estate? What might suit you?

Owners have cashed in and moved on, as rising costs and a stricter regime persuade them that there might be easier and more profitable ways to make money. Former landowners then face the dilemma of where to invest next. So it’s worth assessing how a foray into stock market investing might compare to real estate.

This article is not personal advice. If you are unsure whether an investment is right for you, seek financial advice. All investments can go up and down in value, so you may get back less than you invest.

Why do owners sell?

Listen to part of our latest podcast on why landlords sell.



New regulatory requirements have limited the charges and fees that landlords can raise, while the rising tide of liability and accompanying paperwork has also increased costs.

The white paper on tenant reform published in mid-June will only magnify this effect. This is an essential advance for the rights of tenants. But it adds more responsibility to landlords and includes measures that make it harder to raise rents. There’s a reasonable chance it could persuade even more to sell.

The tax system has also been tightened. Six years ago, property investors were hit with a 3% surcharge on stamp duty. Then, a year later, the tax exemption on the purchase-rental began to change. For the past two years, investors have only been able to claim a flat tax credit of 20% on mortgage interest.

Capital gains tax thresholds have also been frozen at a time when property prices are soaring. We have also seen the freezing of income tax thresholds, while rents are exploding. This means that real estate investors pay more taxes at entry, more as they go, and even more when they sell.

At the same time, soaring property prices (which peaked at over 13% in June last year) and an incredibly buoyant property market (which saw over 200,000 sales in the same month ) have convinced some owners that the time has come to sell. .

The concerns of real estate investors

Former real estate investors could find themselves with money burning a hole in their pocket. And given that no savings account currently comes close to keeping up with inflation, assuming they want to save money for 5-10 years or more, the stock market might just be the answer.

Should I save or invest?

However, there are common reasons why real estate investors tend to shy away.

Despite all the disadvantages of a real estate investment, it offers the assurance of a concrete asset. Stocks and funds, on the other hand, exist on paper or on a screen, so they seem less tangible. One way to understand this is to think less about the numbers on the screen and more about the underlying assets. Knowing that you own a share of a household name can feel more meaningful.

The property also has the advantage of being familiar. It’s part of everyone’s life, so you feel like you already know it well before you start. Shares, on the other hand, can feel more distant. However, owning a property to live in, and understanding what’s going on to know if you can afford the mortgage, is a world away from real estate investing. You have to make completely different buying decisions based on factors like maintenance, rental demand, and returns.

You also need to factor all sorts of things into your calculations, including taxes, cancellation periods, any rent arrears, and additional costs from repairs to legal fees.

At the same time, far from being unknown, actions are part of most people’s lives. Not only are these stocks of companies we interact with every day, but if we have a pension, chances are we already own them, whether we know it or not.

Real estate investors also tend to be more active, so they may worry about entrusting their investments to a professional, whether it’s a financial adviser or fund manager. However, stock market investments allow you to be as hands-on as you want.

There is plenty of information available online to help you master investing and take as much or as little control as you want. You may choose to use a financial advisor or you may prefer a do-it-yourself investment.

When it comes to analyzing stocks, we can do a lot of legwork for you. Sign up now to get the latest research and updates on over 100 of the most popular stocks with our clients.

You may want to opt for funds to provide greater diversification, but even then, the more active you are willing to be, the better.

Studying the fund’s objectives, the underlying investments and the strategies employed by the manager, then making sure they are right for you, is a great way to ensure that the fund is doing exactly what you expect.

Why funds are the basis of a diversified portfolio

Benefits of investing in the stock market

Investing in the stock market has some advantages over real estate that should not be overlooked. It offers more diversification and is easier to access. You can buy a share with just a few dollars, while you’ll need thousands to buy a single property – before you even start to diversify. The fact that you have all your eggs in so few baskets is a major drawback for real estate investors.

Stocks are also much more liquid, so when you eventually want to cash in, you can normally sell stocks quickly and easily. Compare that to property, which can take months to sell and require real discount in a tough market. You can also choose to cash out what you want, when you need it. It’s much more difficult and expensive with a property if you want to free up equity by paying it down.

Then there are the tax benefits.

For the first £20,000 a year you can invest entirely free of all UK tax via ISAs – including dividend tax and capital gains tax. This means there is no tax to pay on entry, as you go, or on exit.

For any investment outside of an ISA, the fact that you can cash it out a little at a time means you can spread it out over tax years. It also means you can make the most of your capital gains tax allowances. You can also take full advantage of your dividend tax allowance.

Remember that tax rules can change and their benefits depend on your personal circumstances.

For landlords who have been in the real estate game for years and are considering a move, this can seem overwhelming. However, once you’ve read the subject a little, dig deeper into some individual funds and stocks, and understand the potential tax savings, it will feel a lot more familiar and manageable.

Plus, a fund and stock portfolio will never call you at 3am asking you to change a light bulb.

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