In 2019 I did a good deal of research on property investing. It was something I was particularly interested in exploring and getting involved in. I did all the seminars and really got my teeth into how it all works. But in the end, I decided not to pull the trigger. Here’s why:
Property gurus say things like “everybody needs somewhere to live” and “Britain has a huge undersupply of houses” in order to build an argument that property is a very safe investment. And both those statements are true, however, I felt they’re downplaying the risks.
Investing In Property Requires You To Get Into Debt In Order To Make It Worthwhile
Buying an investment property in cash is not a particularly wise decision. After all the costs associated with property maintenance, you’ll be lucky if you make a 3-4% yield if you paid a reasonable market price for the property. And 3-4% yield can be achieved by the stock market all day long – and if you do it right, here in the UK, it can even be tax free.
Because of this, to make it worthwhile, and hike the yield up to 15-20%, you need to get a mortgage on the property. Yes, that’s right – it becomes a better investment if you borrow to buy it. However, in my eyes, that’s taking a huge amount of risk on a single property. Because your 20% yielding investment now hinges on your ability to make sure that property is occupied all of the time. Otherwise, you’re going to have to pay the mortgage yourself.
Not all will agree, but I think that’s a large amount of risk to take on a single investment.
If you invested in the stock market, you can do so without going into debt to do it, and you can achieve much better returns sometimes much faster and without most of the headache that is inherently connected to property investing.
Property Requires A Power Team
In order to invest in property, you need a number of people on your team. You need a handy man, a plumber, an accountant, a solicitor, and if you’re going to scale your portfolio, you’ll need all of these people regularly. And where there are people, there is management (and the potential for headache).
Stock market investing or trading is just you and your laptop. Nothing to manage. Nothing to repair.
Property Can End Up Costing You
We’ve already addressed the importance of keeping the investment property occupied, but now let’s consider the opposite. What if it sits empty for a while? Well, for every day that nobody is living there, you need to pay the council tax yourself and you need to pay the standing charges on the gas and electricity as well as any local service charges and ground rent that need to be paid.
This changes the picture slightly. It’s not just that if the property is empty, you’re not making any money – you’re actually paying for every day that it stays empty.
Property Is Much Harder To Buy And Sell
Property purchasing takes weeks and costs thousands. And selling is the same, plus you can’t sell if you can’t find a buyer.
The stock market infrastructure gets around these problems. You can buy stock in a click and sell out in a click. This keeps your cash very very liquid, and, in our view, vastly reduces your risk.
You Can Invest In Property Through The Stock Market
Isn’t this just the icing on the cake? But it’s true. There are property companies on the stock market. There are also things called REITs – Real Estate Investment Trusts – which are essentially floated entities that you can buy into which produce rent in the same way that investment properties do.
You can also diversify very easily into commercial property and also not have your entire cash investment hinged on filling one house with one tenant.
So, which is best? Property investing or stock market investing? That’s for you to decide. But we think it’s obvious. If you decide that it’s stock market investing, for more information check out our introductory course, The Stock Market Demystified.