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Reasons I’d ditch a property portfolio for a financial one

Kirsteen Mackay
Senior couple at the lake having a picnic

A buy-to-let property portfolio is the goal of many a career-focussed individual – the sun-lit pathway to a mortgage-free and financially secure future. But is it?

I don’t think so. There are many downsides to running a property portfolio, not least of which is the hassle. Even if you use an agent to take care of the brunt of the administrative tasks, you’ll still be called upon for your input on many of the menial requests, complaints, and concerns of the tenants. All besides the extra costs you’ll incur in paying the agent.

You may be one of the lucky ones with a tenant who pays their bills, never complains, and keeps the house in pristine condition, but this is not par for the course.

Property vs. stocks

You’re liable to pay 3% stamp duty if you purchase a second property over £40,000 in England and Northern Ireland, over and above the original stamp duty rate for the property band. Scotland and Wales also incur stamp duty on property purchases, but the rules differ.

Mortgage interest payments on additional homes can be higher and can’t always be offset against rental income.

With Brexit still dragging on and UK growth suffering, fears of a recession are rising. This will continue to push down house prices and make it harder to make decent returns from a property portfolio.

Maintaining a financial portfolio is much less hassle, and costs incurred can be kept to a minimum. In theory, you can invest as little as you want, but when you take the dealing costs into consideration, it’s best to start with at least £1,000. This is substantially less than the capital required to buy property.

Getting started

You’ll need an online brokerage account, which is usually in the form of an ISA or SIPP, which are very simple to set up. There will be a monthly or annual fee, along with trading costs. If you want a Level 2 account, which gives you an in-depth trading analysis, then the cost will be higher, but unless you’re planning on day trading, most individual buyers of shares don’t require this level of insight.

The main players providing share dealing accounts for beginners include Hargreaves Lansdown, Interactive Investor, and AJ Bell to name a few.

Making a million

It may seem like an impossible pipe dream, but there really are investors who’ve made a million out of buying and selling shares in their ISAs. It’s important to do your homework; buy value with the potential for growth, income from dividends, and companies managed by people with integrity.

There’s a lot to consider, so I think it’s important that you don’t rush. It’s also a good idea to diversify your portfolio with a mixture of stocks, index funds, or bonds. 

Although the economic uncertainty makes this a depressing place for property values, it can make a great bargain hunting ground for value shares. I think now could be the perfect time to invest in stocks to safeguard your financial future and walk the path to your first million.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019