When it comes to deciding which investment strategy is best many start by considering property vs shares. Which will provide the highest returns? Whilst will be more reliable? Which is more high risk? Which will weather market up and downs better?
It’s clear to most investors that they need to have a plan in place, an investment strategy that fits their budget, requirements and future plans. Whether you’re hoping to boost your income or you are planning for retirement – the factors driving your investment will also add to the argument for either side when deciding to invest in property or shares.
Risk factors
All investment comes with some level of risk.
Whilst shares do not require a large cash sum to get started the stock market tends to be more volatile than the property market – from that perspective shares carry a higher risk.
Shares are liquid; they can be bought and sold easily. Property is a tangible asset which has its pros and cons; you cannot rely on selling a property immediately should you need the cash in an instant, however owning a physical property tends to offer some shelter in the face of economic or political uncertainty when compared to shares.
Share prices are subject to fluctuations in the market and also company-specific changes or geopolitical ones; say, for example, the company you hold shares in has a large part of its operations abroad – this division is subject to the rules and laws of that country. All factors to consider and factors that increase the risk level.
Weathering the economic climate
The biggest risk for property investors is purchasing the wrong property from the outset. Buying in a location with low or unsure capital growth prospects or paying over the odds can put a dent in the returns.
Everyone needs a home and, especially in the UK, there is a severe lack of property available to rent in comparison to the demand – high quality, modern properties are particularly popular with professional individuals. History shows us that the UK property market is resilient and it has been tested many times. Successful investors take a long term view and know that there may be peaks and troughs but the overall trajectory for both rental income and property prices is upwards.
Being more volatile shares do not always fare so well in periods of economic downturn and individual investors could face dramatic loses or make decisions based on emotional judgement in the spur of the moment that could prove very costly.
The coronavirus pandemic has recently reignited the debate for investing in shares vs property and has highlighted the volatility of shares once more.
Leverage – an advantage for property investors
Property investors use leverage to build a portfolio of income-producing properties. Getting a mortgage to buy a rental property allows an investor to put less cash into an individual property, and potentially enables them to spread the cash across several property purchases by leveraging.
Carefully chosen rental properties are cash-flow positive meaning that the income from rent will cover costs such as the mortgage and management and also provide a regular income. By leveraging and purchasing several properties building a portfolio the return on investment will be far greater as the capital growth occurs on the full value of the property not just the cash input.
Which investment is easier?
Investing in stocks and shares can sound like the easy option, the stock market is far easier to navigate and shares don’t need the same level of upkeep right? Wrong.
Stock market values go up and down much more frequently and at more varying rates than property prices meaning that a successful investor needs to constantly stay informed and make decisions quickly and regularly. Research has shown that individual investors are not very good at capturing the market and tend to buy and sell at precisely the wrong time often wiping out any possible gains.
On the other hand, before investing in property you have time to make a decision and consider all the facts and figures before committing. Property is a tangible asset and will require a degree of upkeep but this can be planned for and factored into an investment strategy easily. The long term nature of property investment means that prices and rents will rise with inflation over the long term, and it tends to weather the market up and downs better.
Reasons to invest in UK property
1. Tangible Asset: Purchasing a property for investment means you own a physical asset; there is a sense of security found in owning something you can see and touch. Tangible assets are also seen as a ‘hedge’ against inflation meaning that as the cost of living increases so do the property market prices. Comparably inflation can negatively affect the stock market.
2. Control over investment: As a property investor you have an increased level of control over your investment; you choose exactly which property and exactly where you will purchase. The success of your asset is largely down to the decisions you make and not what a board of people chooses to do with a company that you hold shares in yet have no say over the running of.
3. UK property market track record: As an investment UK property provides an exciting opportunity; certain areas across the UK hold the promise of extremely impressive capital growth whilst also generating high rental yields.
UK property investment in 2020
Taking advice when finding and purchasing a rental property for investment can be very advantageous – a discerning investor armed with useful information and guidance from an experienced consultant can make a well-informed decision. One of the most important elements for property investment success is purchasing the right property from the outset.
To talk to a member of our team regarding your plans for property investment please contact us. We’re available on the phone +44 (0) 2039507939 or on email at info@thirlmeredeacon.com.
