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Property or Stock: Which Delivers the Best Return?

15 06 2019

Whether you’re starting out with investments or seeking to build and diversify your portfolio, it’s essential to compare your options to make an informed decision.

Every investor will have their own unique circumstances and needs. However, property investment has some clear advantages: not only does it involve a physical and tangible asset that can offer more security, but it can also provide investors with both consistent rental returns and strong capital growth.

Of course, choosing the right property in the right location is critical for realising these benefits.

Historic Strong Returns

Hometrack’s UK Cities House Price Index reinforces the point that location is key when it comes to choosing your property investment, and there is plenty of potential. Price growth ranged from +5.1% at the top end of the scale in Glasgow down to -0.5% in London between April 2018 and April 2019.

Property allows sophisticated investors to make informed decisions based on a wealth of data for an asset that has continued to deliver strong returns for years.  In fact, studies show that basic-rate property investors could reap around five times more in returns than their equity-investing counterparts. As a tangible asset, property also offers the opportunity for added appreciation which doesn’t exist if you choose to invest in stock.

High Risk vs. Low Risk

Another reason that property can be a safer investment option than stock is that the latter is far more vulnerable to market conditions. Investing in stock is commonly seen as a high-risk strategy and the value can rise or fall depending on the economic landscape and individual company performance where you might be at risk of losing all of your profits should a business go under.

In contrast, property has proven itself to be resilient even in tougher pre-Brexit market conditions and in the face of new tax regulations affecting landlords. Buy to let yields remain strong in many parts of the country such as the northern cities of Manchester, Liverpool, Nottingham and Leeds.

Looking at Totally Money’s buy to let rental yield map for 2018/2019, Nottingham takes first place and Liverpool second as the best buy to let areas in Britain. The university towns perform especially well with – for example – Nottingham’s NG1 postcode giving an average rental yield of 11.99% and Liverpool’s L7 postcode delivering 9.79%. Manchester, Leeds and properties across the Northeast and the Northern Powerhouse also offer high rental yields.

Staying in Control of your Investments

Even during tough economic times, investors can continue to enjoy steady cash flow from their tenants and retain the in-built equity of their properties.

You can amend and improve your investment over time – for example, by enhancing the property facilities – in order to improve your rental income in line with investment goals. Ownership costs are a key factor that can eat into your rental income but making savvy decisions with your chosen property will reduce or avoid these costs entirely.

For example, by investing in a new build in a prime location rather than a tired, older property in an area with more supply than demand, you have a property that is ready to live in rather than one that requires extensive and potentially ongoing maintenance.

Research shows the importance of both rental income and rising property prices when it comes to investment returns. When compared with stocks, rental income has historically outperformed dividend income due to a higher income yield although this can vary significantly depending on current market conditions. Overall, property offers far more leverage opportunities through capital gains and leveraged rental property can be a very lucrative option.

Fully Managed Investments

Another benefit of property investment is that many properties are available fully managed, meaning a hands-off investment and one of the best passive investment opportunities. Management companies will optimise your investment by taking care of all aspects of the property in a fluid manner with a structured payment plan.

Their services typically include marketing fees, maintenance and repairs to ensure your property is kept in the best shape and tenants satisfied to complement a consistent revenue stream from rental income. All of the properties on the Alesco books are available fully managed.

Both overall and in comparison with stock, property as a passive income opportunity offers greater peace of mind. It is a way for even the most hands-off investor to grow their retirement funds in a safe context with attractive returns, without the need to spend time nurturing their assets.

Guaranteed Returns

Many new-build and off-plan developments offer investors added security in the form of guaranteed returns for a fixed term. For example, the Baltic Triangle development in Liverpool offers 7% assured net rental income with starting prices from £114,750. Due for completion in 2020 and situated in the city’s iconic Baltic Triangle, this is one of the most exciting opportunities available on the coveted Northern Powerhouse investment landscape.

If you’re thinking about investing in property, now is the ideal time as buy-to-let mortgage rates have dropped dramatically in recent years. Despite scaremongering around Brexit, experts believe that we may, in fact, be on the cusp of a post-Brexit boost. Prime property investment prices are stabilising and there have been no signs of a property crash.

Choosing the Best Location

Housing demand remains high, and there are good opportunities for buy to let, in particular for those looking at fixed-rate, longer-term mortgages which will safeguard against any interest rate increases. Many such deals also offer a porting option which allows lenders to avoid redemption penalties should they move to a new home during the fixed period.

We now know why we should invest in property but choosing where to invest is crucial. When it comes to choosing your property investment, location is everything. We have many exciting opportunities across the Northern Powerhouse but it’s important to make an informed decision about the best option for you. Our teams of experts are on hand to help you find something that is right for your individual circumstances and goals.

Contact us today for more details.

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