Property Vs Stocks and Shares Property Vs Stocks and Shares

Investing in Rental Property Vs Stocks: Which is the Better Investment?

If you’re new to the world of investing, you may be feeling unsure about which venture offers the most potential – stocks or real estate? The debate between property vs stocks is something that investors have explored for many years. After all, if you’re depositing a large sum of money into something, you want to be sure that you’re making the best decision and setting yourself up for the best possible return on your investment.

 

When it comes to property investment, purchasing a rental property is one of the most popular routes that many UK investors take. If you’re unsure whether investing in rental property vs stocks is the right choice for you, make sure you read this guide. Here, you’ll find information on the basics behind both property and shares, with pros and cons behind property vs stocks, helping you decide whether the stock market or rental property market is right for you. We also offer an FAQ’s section, providing answers to commonly asked questions. Before you decide to invest in property or stocks, keep reading to find out more in our in-depth guide.

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A Guide to Property Vs Stocks

Before knowing whether you should invest in the stock market or a rental property, you need to understand what each venture involves. Here, we’ve provided a brief but detailed summary of the main points you need to know when analysing stocks vs property in the UK.

Put simply, property investment – or real estate investment – is a term used to describe the process of purchasing a property in order to make a profit. The two ways people make money from property investment are through buy to let and buy to sell. Buy to let is when an investor purchases a rental property and lets it out to tenants, generating monthly returns through rental payments. When the investor is ready to exit their buy to let investment, they will hopefully then generate capital growth returns through the sale of the property. With buy to sell investments, the main aim is to make large capital growth returns, as this type of investment doesn’t involve letting the property out to tenants. This type of investment usually requires some level of refurbishment in order to add value to the property for a quick and profitable sale.

Property investment typically refers to the investment of either residential or student properties. However, it can also mean less traditional property types such as a hotel or hotel room, retirement home, or commercial property. Those seeking long term investments in the UK will normally focus on residential property investment, as this is known to provide the best rental returns, demand, and capital appreciation compared to other property types.

Investing in stocks and shares is when an investor ties their money up into a share of a company in the hope that it will grow in value over time. Once you own a share of whatever company you’ve invested in, you’re entitled to a cut of the profit if the company does well. The percentage of the company that you own depends on the number of shares you purchase. For instance, if a company had 10,000 shares and you purchased 500 of those, you would own 5% of the said company.

Those involved with investing in shares in the UK will either hire an expert such as a stockbroker to manage their investment or select the stocks themselves. In order to get the most out of stocks and shares investments, enlisting the help of a stockbroker is normally preferred as they will pick out the best shares to buy in the UK.

Property Investment

Put simply, property investment – or real estate investment – is a term used to describe the process of purchasing a property in order to make a profit. The two ways people make money from property investment are through buy to let and buy to sell. Buy to let is when an investor purchases a rental property and lets it out to tenants, generating monthly returns through rental payments. When the investor is ready to exit their buy to let investment, they will hopefully then generate capital growth returns through the sale of the property. With buy to sell investments, the main aim is to make large capital growth returns, as this type of investment doesn’t involve letting the property out to tenants. This type of investment usually requires some level of refurbishment in order to add value to the property for a quick and profitable sale.

Property investment typically refers to the investment of either residential or student properties. However, it can also mean less traditional property types such as a hotel or hotel room, retirement home, or commercial property. Those seeking long term investments in the UK will normally focus on residential property investment, as this is known to provide the best rental returns, demand, and capital appreciation compared to other property types.

Stocks and Shares

Investing in stocks and shares is when an investor ties their money up into a share of a company in the hope that it will grow in value over time. Once you own a share of whatever company you’ve invested in, you’re entitled to a cut of the profit if the company does well. The percentage of the company that you own depends on the number of shares you purchase. For instance, if a company had 10,000 shares and you purchased 500 of those, you would own 5% of the said company.

Those involved with investing in shares in the UK will either hire an expert such as a stockbroker to manage their investment or select the stocks themselves. In order to get the most out of stocks and shares investments, enlisting the help of a stockbroker is normally preferred as they will pick out the best shares to buy in the UK.

The Pros of Property Investment

It’s a Tangible Asset

One of the main advantages of property when considering the housing market vs stock market is the fact that property is a tangible asset. This means that unlike when investing in shares, UK investors who purchase an investment property benefit from owning something they can physically see and touch. For many people, this provides a sense of security as you can see where your money is going.

Tangible assets are often considered the best type of investment for many reasons. One reason is the fact that tangible assets are seen as a ‘hedge’ against inflation. This means that when the cost of living increases, so do property market prices. This is beneficial for those who have invested in a rental property as it allows them to start earning a higher amount of rental income. With the stock market, however, inflation can negatively affect your investment.

 

The UK Property Market is Performing Well

For those hoping for the best investment returns, UK property investment may well be the answer. The property market in the UK is currently performing highly, with property price growth and increased rental demand seen across the country’s top cities.

One of the main concerns for those choosing between investing in rental property vs stocks is whether or not they will make a significant return on investment. When owning a rental property, high rental yields are a big factor to look out for. If a property investment opportunity comes with high yields, you can expect to generate some significant returns.

When you look at rental yields in the UK, you’ll find that a number of areas offer some lucrative buy to let options. Liverpool, for example, boasts a total of six postcodes that make the list of Totally Money’s best rental yield areas. Most notably, the L1 postcode offers rental yields of 10% – the highest in the UK! This means that property investors who purchase a rental property in this postcode can benefit from lucrative returns on a regular basis. Many other cities in the UK are also known to offer high yields, including other Northern cities like Manchester, Leeds and Sheffield.

Along with rental yields, capital growth is a key factor to keep in mind when deciding between stock market or rental property investments. If a property is based in an area with a slow-growing market, those who invest in it are likely to see low returns from capital growth, or no returns at all. Luckily, the UK property market has shown signs of strong growth over recent months, with predictions for even further rises in many key property hotspot areas. As a whole, the UK property market in February was seen to have risen at its fastest rate since July 2018. In areas like Liverpool, Zoopla reveals that property prices have increased by around 4.34% over a twelve-month period, with a 5.14% growth in Manchester. By 2024, the North West region is expected to have risen in value by 24%.

You Have More Control

Those wondering ‘should I invest in real estate or stocks?’ need to think about the level of control they wish to have over their investment. When investing in a rental property, you’re given a much higher level of control and freedom than you would have if you purchase stocks and shares. Right from initial purchase, investors are offered total control of their investment, being able to research the best buy to let locations and select their property of choice. Those who don’t wish to use a property management company to find tenants and carry out landlord duties also have the choice of managing the property themselves. This can be a good option for those who have more free time on their hands, such as those who are retired or looking for an extra project to manage alongside their main career.

Another area you have control over when investing in a rental property is when and how you plan to sell the property. Savvy investors will research the UK property market to find out the best possible time to consider exiting their investment. This would typically be when the property market is likely to be at its strongest. Investors have freedom over the amount they wish to sell the property for. Of course, it’s always recommended to seek a professional valuation or do thorough research before reaching a final listing price. If your property is listed too high above value, it may be more difficult to sell. Alternatively, if you go for a property price that’s too low, you could miss out on the chance to make larger returns on your investment.

The Cons of Property Investment

Your Property Could Decrease in Value

While property investment can be a worthwhile venture and offer some of the best investment returns in the UK, there are some things to be aware of. One of the biggest downsides of investing in a rental property is that your property is at risk of decreasing in value if you make the wrong investment. This is only likely if you purchase a property in an area with a declining market, which is why it’s so essential to carry out adequate market research.

An example of where many investors go wrong with their property venture is by investing in London’s property market. While London would certainly be the first choice for many investors, particularly those from overseas, the reality is that the property market in London is not performing well in a number of postcodes. Two London postcodes appear in the Totally Money list of the worst buy to let postcodes in the UK due to their low rental yields. London, as a whole, is seeing property prices decline. From September 2018 – 2019, it was recorded that London house prices fell faster than anywhere else in the country. While some London boroughs such as Newham and Hillingdon have seen a level of growth, investors should be savvy enough to research and recognise the UK areas to invest in and the areas to avoid.

As mentioned above, city’s Liverpool and Manchester in the North West region are likely your best bet if you’re deciding whether to invest in property or shares and are seeking the best possible returns from buy to let. Here, property prices have a track record of growth and are expected to rise significantly over the coming years.

You Could Suffer Void Periods

If you’re not familiar with the term, void periods are when a rental property goes without a tenant for a certain length of time. When an investor encounters void periods, they’re losing income that they could otherwise be getting from rental payments. This is particularly problematic for those using a buy to let mortgage to pay for their investment, as you still need to keep up with mortgage payments even if you’re not making any money from the property.

Like decreasing property prices, this can be avoided with the right market research. Void periods typically happen if an investor has purchased a property in an area with a low level of demand. Alternatively, this may happen if you purchase a property which is considered undesirable and doesn’t instantly attract tenants. Areas with low demand tend to be those with small populations of younger tenants. While other tenant groups like families or retirees do also seek out rental properties, young professionals and students make up the majority of the UK rental market. With this in mind, it comes as no surprise that cities like Manchester generate such high rental demand for investors, due to the city having one of the UK’s youngest populations. Young professional and student tenants tend to favour a certain type of property. Properties that feature old and outdated designs, fixtures and furnishings aren’t likely to bring in a lot of demand. Investors who hope to avoid losing income through void periods should aim to invest in a new build property with a modern and stylish design.

Location also plays a big part in how much demand you attract. Those who purchase a property which is close to the city centre and transport connections are sure to bring in a lot of tenant interest. By following these guidelines and carrying out property research, you can avoid some of the possible downsides of property investment if you opt for property over shares.

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The Pros of Investing in Stocks and Shares

It’s a Hands-Off Investment

While it is possible to make a hands-off property investment by hiring a property management company, stocks and shares are ultimately more hands-off than property. This is because with stocks and shares, the majority of investors will use the help of a stockbroker to manage their investments for them. This allows investors to be able to make returns alongside their usual day to day commitments such as their full-time job.

However, it’s important to keep in mind that if you’re considering the stock market vs real estate, you should still take time to research the market and gain some first-hand knowledge. It’s advised that anyone looking for information on which share to buy and how to invest in shares in the UK should seek out some professional advice before getting started. This way, you’ll get a better idea of the best investment portfolio for your needs. You could even find that after research and advice, investing in stocks and shares isn’t the right option.

 

The Ability to Easily Diversify Your Portfolio

All good investors should understand the importance of a diverse portfolio. Diversification is essential whatever investment strategy you take, as it ensures you’re spreading you risk across different avenues. If you don’t have a lot of money available when you begin investing, it can be easier to build a diverse portfolio when you invest in stocks in the UK. This is because unlike property which tends to be higher priced, it’s possible to begin investing in stocks with less money than you would typically need to purchase a rental property. However, it’s important to keep in mind that you’re not likely to see a significant return on your investment through stock investment in the UK without taking more risk with your money.

The Cons of Investing in Stocks and Shares

It’s High Risk

The tricky thing with stock investment in the UK is the fact that while taking more risk and investing larger amounts of money is often the recipe to success, you also risk losing everything. Stocks and shares are known to be the riskiest asset class out there, which is important to consider when comparing investing in rental property vs stocks. Property investment is relatively low risk compared to the stock market.

If you’re not prepared to lose all of your money, then investing in stocks and shares may not be right for you. With property, you’ll have much better peace of mind that your money should be safe and you have the potential to make returns on your investment without the added risk.

FAQs

There are pros and cons to both real estate and stocks. In order to decide which investment is better, you need to do your research and think about your personal goals and requirements. For instance, if you don’t want to risk losing your money, then property is the best investment to make.

While it is possible to make a lot of money by investing in stocks, property is a stable and tangible asset that can offer some of the best investment returns UK investors can make. If you do decide that you’d rather invest in shares, be sure to seek out the advice of a trusted financial advisor who can walk you through your options.

If you have a budget of £100k, real estate is your best option. Many property investment opportunities in the UK are highly affordable and offer fantastic returns. With a £100k budget, you could split your funds across different properties and build a diverse portfolio.

Stocks, on the other hand, have a much higher level of risk. While investing £100k into the stock market can be lucrative, it can also cause you to lose everything you invest. If the money you plan to invest is important to you, such as your savings, then property is a better choice when deciding between real estate or stocks.

In times of economic uncertainty in the UK, the property market has remained resilient compared to the stock market. Property prices in the UK are rising significantly following Brexit in January 2019, and are only expected to grow stronger over time.

Due to the high level that the UK property market is currently performing at, the market is attracting interest from those overseas. By investing in British bricks and mortar, you give yourself the chance to make large returns through both regular rental payments and capital growth while owning a valuable asset.

Is it Better to Invest in Real Estate or Stocks?

There are pros and cons to both real estate and stocks. In order to decide which investment is better, you need to do your research and think about your personal goals and requirements. For instance, if you don’t want to risk losing your money, then property is the best investment to make.

While it is possible to make a lot of money by investing in stocks, property is a stable and tangible asset that can offer some of the best investment returns UK investors can make. If you do decide that you’d rather invest in shares, be sure to seek out the advice of a trusted financial advisor who can walk you through your options.

I have a Budget of £100k, Should I Invest in Real Estate or Stocks?

If you have a budget of £100k, real estate is your best option. Many property investment opportunities in the UK are highly affordable and offer fantastic returns. With a £100k budget, you could split your funds across different properties and build a diverse portfolio.

Stocks, on the other hand, have a much higher level of risk. While investing £100k into the stock market can be lucrative, it can also cause you to lose everything you invest. If the money you plan to invest is important to you, such as your savings, then property is a better choice when deciding between real estate or stocks.

I'm an Overseas Investor, Should I Invest in Property or Shares in the UK?

In times of economic uncertainty in the UK, the property market has remained resilient compared to the stock market. Property prices in the UK are rising significantly following Brexit in January 2019, and are only expected to grow stronger over time.

Due to the high level that the UK property market is currently performing at, the market is attracting interest from those overseas. By investing in British bricks and mortar, you give yourself the chance to make large returns through both regular rental payments and capital growth while owning a valuable asset.

Investing in Rental Property Vs Stocks: Things To Keep in Mind

Now that we’ve reached the end of our guide, if you’re still unsure about what to choose between stock market or rental property investments, take a look at this summary of the key points to take away.

  • Property investment stands out against stocks and shares investments as investors are able to generate not one, but two types of return.
  • The property market is predicted to grow in value in a number of areas such as the North West, securing higher capital growth returns for investors.
  • While investing in stocks and shares can offer a lot of potential, it also comes with a lot of risk. Investors can lose all of their money from investing in stocks, so it’s important to be cautious.
  • Property investment is ideal for those who want to take more control of their venture, unlike stocks and shares which is more hands-off.
  • The downsides of property investment such as possible void periods and declining market values are easy to overcome if you carry out the right level of research.

Interested in Investing Money in Property?

If you’ve read our tips on stocks vs property in the UK and feel it’s time to invest in property and begin your buy to let journey, get in touch with RWinvest. We have a wide range of rental property investment opportunities with high yields, strong growth potential and stylish, modern designs. Ready to get started? Contact us today for more information.

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