CybiWealth investing in Stocks versus Buy-to-let Property

Investing in Stocks versus Buy-to-Let Property

When considering which is a better, investment in buy-to-let property or stocks, there is no right or wrong answer because it also depends on your personality and preference.  Buy-to-let property may be a better investment option for extroverts who are naturally comfortable managing tenants.

When you invest in buy-to-let property, you are buying tangible property.  There are two types of real estate – commercial and residential.  Residential property, for example, could be a family home or apartment whereas commercial property could be an office building or shopping mall.

Making money in buy-to-let property is possible but not always straight forward.  Buy-to-let property is often bought for investment purposes, an example is a dilapidated house that is revamped and sold at a higher market value in order to make a profit.  Some people buy property to rent out and the rent received from tenants forms their income.

There is also the option of listed property investment.  Listed property investment is a portfolio of commercial properties such as shopping centres, warehouses and offices that are owned by a management company and listed on the stock exchange.  Listed property can also be a unit trust investment managed by a property investment specialist.  This investment yields income in the form of rent from the properties within the portfolio.  Because it is listed on the stock exchange, it is easy to sell whereas private commercial or residential real estate can be listed for months or years before it sells.

When you buy shares of stock, you are buying a portion of a company.  You therefore own a certain percentage of the business and receive a percentage of the profits.  The company’s directors decide how much of the profit each year is to be used for the development of the company and how much gets paid out to investors in the form of dividends.

Below are some points to consider when deciding between buy-to-let property and stocks and some reasons stocks in high-quality companies could be a better investment choice.

Points to consider with buy-to-let property investments:

  1.  Taxes, maintenance, levies, insurance, loans will all have to be paid at the end of every month.

2.  You will still have to pay all the costs on your buy-to-let property each month even if unoccupied, as you will still have to pay the mortgage.

3.  There can be a leaking roof, electrical faults, faulty plumbing, and other things you never expected could go wrong.  Even natural disasters can happen and have to be considered.

4.  The sale on buy-to-let property can be very expensive when taking into account the commission, fees and taxes that have to be paid.

5.  It can take months, even years to find a buyer for buy-to-let properties.

Points to consider when investing in stocks:

1.  Time has proven that buying stocks, reinvesting the dividends, and keeping the stock over the longer term, increases an investor’s wealth more than any other asset class.

2.  A new business would require your management and supervision on a daily basis whereas owning a portion of a business through stocks does not require any work.  Professional teams are hired to oversee the operations of these companies, in which you hold stocks.

3.  Investors receive a portion of company’s profits in the form of dividends but do not have to work at the company, as an employee.

4.  Stocks in quality companies show increased profits and dividends over time.

According to Fortune Magazine, “If you’d bought a single share [of Johnson & Johnson] when the company went public in 1944 at its IPO price of $37.50 and had reinvested the dividends, you’d now have a bit over $900,000, an incredible annual return of 17.1%.” You would also receive around $34,200 per year in cash dividends.

5.  Stocks are easily diversified as opposed to buy-let-let property.  It is possible to get started with CybiWealth from just £500.  Loans on property require a deposit paid upfront which is a large amount of  money.

6.  Stocks are very liquid compared to buy-to-let property.  Your investment portfolio can be sold within a short time frame.

 

Sources consulted:
https://www.thebalance.com/real-estate-vs-stocks-which-is-the-better-investment-357992
https://www.investopedia.com/articles/basics/09/real-estate-versus-stock-investments.asp
https://mg.co.za/article/2010-08-26-property-vs-shares

 

The facts and opinions presented in this blog article do not necessarily reflect those of the CybiWealth team or FIM Capital Limited. FIM Capital is licensed by the Isle of Man Financial Services Authority and authorised and regulated by the Financial Conduct Authority.