This was the subject of an interesting article in the Sunday Times last week. I often see property gurus discussing why bricks and mortar is better than investing in stocks and shares, and stock investors discussing why stocks are better than property investing.
It’s interesting for me as I’m focusing on building our property portfolio whilst my husband, Alec is concentrating on his trading business. So we are currently doing both strategies.
Both, property and the stock market offer very lucrative investment opportunities and both have their pros and cons. To make maximum money out of your investment, it is very important to gain knowledge of both the fields.
According to the Times, The FTSE 100 has jumped 35% since March and property prices are up 4.4%. Although you shouldn’t get too excited as they remain 28% and 17.2% respectively below their peaks in November 2007. I always think that the media print headlines to put across exactly what they want you to hear, they can manipulate the headline to put across bad news as good news, or good news as bad news! Despite the headlines, research by Mintel shows that a third of adults believe now is a good time to invest in bricks and mortar and half the population believe property is a good long term bet, despite the recent crash.
Over the long term it appears that there have been various winners, over a 40 year period shares returned a much larger return than property. But over the last decade property has been a clear winner: share investors would have lost 14.4% but would have returned a 71% gain on property, which is pretty impressive! However this has changed recently, the Times stated that the summer stocks rally has been strong and that the Footise beats Bricks and Mortar over five years: they are up 1.2% whilst property prices are down 9.2%.
Interestingly, Warren Buffet, one of the most successful investors in history and CEO of Berkshire Hathaway, has got out of stocks. His spending on shares has fallen to its lowest level in more than 5 years. John Higgins from Capital Economics stated that “people looking for double digit annual returns from equities are going to be severely disappointed over the next decade”.
So what about property? Roy Beale at Nationwide said “the improvement in housing-market conditions does not mean that the positive price trends of recent months can be extrapolated into the future in a straight line”. Although today’s buyers may get in at the bottom of the market they should not expect to see the returns that were seen at the beginning of the decade. Charles Davis, an economist at the CEBR said buyers should expect single-digit growth in the longer term, not like the double-digit growth before the credit crunch.
If single-digit growth is likely, you may need to have a longer term strategy for property these days. This is why I believe that cash flow is king! Do your due diligence on a deal and make sure that it cash flows every month! If you can get the mortgage paid for every month then you have an asset that is going to grow.
So for us, we’ll continue to apply our multiple income stream strategy with property and stocks and let the gurus fight it out!