Is property still a good investment for doctors? What alternatives are there? Medics’ Money sat down with Darren from Dental and Medical to find out. You can contact Darren for a no obligation consultation via Medics’ Money here or you can find you nearest Medics’ Money recommended IFA here
A solid investment plan is the foundation of a financially safe future. And the sooner you start investing, the better off you’ll be.
When you sit down to build your plan, there are a few things you need to ensure you take into account: your needs and goals, your current financial situation, your propensity for risk, how long you plan on investing, what you hope to get in return, what stage you are in your medical career and the types of investments you’re comfortable with. The right investment plan will take all of the above into consideration. Your attitude toward risk is the prevailing factor that would affect your mix of investment choices, followed closely by how long you plan to hold on to your investments. We usually recommend to medical professionals that a good portfolio includes a variety of investments like cash, shares, property, and bonds.
Up until quite recently, property ownership was pretty much guaranteed to produce great returns on your investment. It was also one of the most common ways people saved for retirement. But in the last few years, buy to let property managers have been hit with ever-changing tax legislation and increasing fees. With additional costs, many are now questioning whether buy to let is still a viable investment option.
Why has property become less profitable?
To put it succinctly, property portfolios have been affected by a combination of increasing tax, property price inflation, legislation changes, and tightened regulations.
The biggest culprits are:
- the cutbacks in mortgage interest relief down to the basic rate of tax that will come into effect April 2020
- the 3% additional stamp duty land tax surcharge for additional properties
- the abolishment of the wear and tear allowance which was replaced with a new relief scheme
- plus, rising property prices meaning it costs more to get on the property ladder.
It’s become a problem for many of the private landlords surveyed in the Residential Landlords Association, a study of approximately 2,500 landlords. The study revealed that a quarter of them are contemplating selling at least one of their properties within the next year.
Property ownership can still be beneficial
A buy to let property can be great for long term investment because it can form part of your retirement plans and even work as a back-up option to downsizing or equity release. The best place to start is to get together with an independent financial adviser to review investment options. They can advise the best areas to invest your money and help you make the right choices that will provide the best returns.
You just have to look a little harder for great property investments
While it’s no longer the guaranteed source of income it used to be, there are still ways to remain a profitable buy to let property manager. You’ll need to look closely at property locations – mainly up and coming areas with the right specifications will still produce good returns. Keep the benefits in mind over a long-term investment point of view.
So, what are the other options?
With all the constraints being placed on landlords, it’s important to invest in other areas as well as property. The remaining elements of a diversified portfolio include cash, shares, and bonds and are split up into two types of investing: defensive and growth. Defensive investments such as cash and bonds focus on generating regular income, as opposed to growth investments like property that increases in value over time.
Cash
Cash is in the form of savings you keep in a bank or a building society account. Cash investments provide stable, regular income through interest payments. Even though it is the least risky type of investment, it is possible its value could diminish over time, even though its pound figure remains the same. It’s a possibility if the cost of goods and services rise too quickly (also known as ‘inflation’), meaning your money buys less than it used to.
Shares
A share is a single unit of ownership – a stake in a company. They’re considered growth investments because their value can rise. You may be able to make money by selling shares at a higher price than you initially pay for them. If you own shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders. Shares are slightly more complicated than property, so educate yourself on how the stock market works and the individual shares you wish to buy. It might be a good choice for first-time investors to work with a broker that will help you invest. Stocks are relatively easy to manage so you can take a laid-back approach – just buy and let them do their thing. Or you can manage them hands-on by keeping an eye on stock trackers daily. They are, however, subject to unexpected changes. Meaning they fluctuate from day to day and if you’re overly cautious, it can be tempting to sell an underperforming stock that may improve just after a sale. But they’re easily sold which is great if you need money quickly. Plus, they have good protection from inflation. Shares can be purchased through tax shelters like ISAs or pension funds, which is a big advantage.
Fixed-interest Securities
Growth investments aim to increase over time. Growth investments’ prices can rise and fall significantly, so they may deliver higher returns than defensive investments. On the other hand, you also have a larger chance of losing money. Property is one type while fixed interest securities (bonds) are another. With bonds, investors lend their money to a company or government, who sell them to investors for a fixed period of time and pay them a regular rate of interest. At the end of that term, the bond’s price is repaid to the investor. While they are normally a low-risk investment, certain kinds can decrease in value over time, resulting in getting less money back than you initially paid.
How do you decide which one is right for you?
Stocks have actually proven to be a better long-term investment when compared to property. Within the last decade, house prices have moderately increased, a slow rebound from the financial crisis, in all areas of the country. London, ever the exception, has experienced a much higher rate of house price growth. At the same time, share prices have also been increasing. According to a Credit Suisse study, as of 2015, the net income of property came to 3.05% (5.02% ex fees, etc.) while net income on stock market gains came to 6.2%. (These figures were calculated with an estimated 2% of the property value is maintenance, fees etc.) Even disregarding fees and maintenance, it’s clear the stock market is the winner. Every investment option has pros and cons, especially when considering long term results. But since it’s become harder to turn a profit from rental properties, you might find that stocks are more worthy of your hard-earned capital. Ultimately, what’s worthy of your investment is what makes you comfortable and also helps you build and protect the investments you’ve made with your hard-earned money.
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This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice. Dental and Medical Financial Services is an appointed representative of Best Practice IFA Group Limited, which is authorised and regulated by the Financial Conduct Authority.
