Should I Invest or Buy a Rental Property

One of the most frequently posed questions to any financial consultant is whether they should enter the buy-to-let market or invest in the stock market. I always try to be concise with my answers, so finances permitting, you should do both and diversify your portfolio as much as possible to provide both better returns and more protection. Diversification, using both fixed and liquid, offers investors a multitude of possibilities.

How are both markets performing at present?

While COVID-19 has had a negative impact on most people’s lives, the same cannot be said for the property market or the stock markets. Indeed, both have been hitting peak points in their price movements since 2008. So, if stocks and property are peaking, is now a good time to buy?

Typically, the advice would be to “buy low, sell high”, but we aren’t experiencing “normal” market conditions and the equity and property markets are still rising at an impressive rate. In addition, properties in the UK are selling within 48 hours of being placed on the market, primarily driven by coming out of lockdown and low-interest rates. It is something that hasn’t been seen since the 1980s when buyer’s scrambled to buy Thursday’s newspapers for the property pages in the hope that they hadn’t missed out on their dream home. Based on this information and unusual circumstances, we believe that now is the right time to buy.

What are the tax implications?

Stamp Duty on buy-to-let properties will be rising again after 30th September 2021, with those buying a second home paying 3% more than those purchasing a property for personal use. As such, many people are put off this market, especially with landlords no longer able to offset the 10% annual wear and tear allowance. When this is combined with mortgage interest tax relief being replaced by a 20% tax credit, the number of rented properties reduced by 250,000 between 2016 and 2020, according to Hamptons Estate Agents, based in Britain.

If we were to give you an example of how this would affect you in monetary terms, a deposit of 25% on a £300,000 property would be £75,000. The extra stamp duty of 3% equates to an additional £9,000 in tax. However, if the same £75,000 were invested directly into a pension, basic rate tax relief would mean an uplift of £18,750, a desirable proposition for anyone, we are sure you would agree.

If you are still considering purchasing a buy-to-let property, we suggest that you read on! Capital Gains Tax has also increased to 28% for higher rate taxpayers and 18% for those in the basic ratepayers. Investors should be aware that the tax rates for most other assets are 18% and 10%, respectively, which naturally reduces the chances of achieving real terms growth on your property. If capital gains are one of your objectives, is buying a buy-to-let property so attractive?

How much can I realistically expect to earn from a rental property?

It is a common question and one which is perfectly natural. But, if we refer to the Hamptons data below, you can see that, on average, returns are reducing each year across the UK, which is a trend that is anticipated to continue. Of course, while these are only averages, they do indicate at least what we should expect.

Source: 21st April 2021.

Is this a good way to achieve some additional income?

As a landlord, there are approximately 170 regulations and laws and an extra 400 obligations that you must comply with. Of course, this brings additional headaches, so letting a property is no longer as easy as it was a decade ago. You need to consider that finding suitable tenants who pay their rent on time and look after your property is not easy. Liquidating the property, in terms of disposal, should you need to, takes time (as shown below), all of which make you question whether it is all worth it.


With all this information, is having a buy-to-let property in your portfolio a good idea?

You may be surprised to hear that actually, we still do think that it’s a good option! However, you need to be more selective about the property you choose, considering how you hold the asset, how you purchase it, the company you use, and, of course location, location, location.

What about an investment portfolio of stocks and shares?

Fortunately, owning stocks and shares is nowhere near as complex as owning property, particularly for an offshore investor. However, it is still possible to invest in property via a Real Estate Investment Trust (REIT), which will give you some exposure to bricks and mortar without the complications of physically holding and managing it.

How does the performance of the UK property market compare with the FTSE-100?

If we compare the last 40 and 10 years, the performance of the FTSE, the top 100 companies by capital size in the UK, has been very impressive. For example, an investment in the index made 37 years ago would have increased by 549.98% and over the last ten years 38.9% (information from

If we then compare this to a similar investment in the buy-to-let market, an investment of £23,730 made 40 years ago would now be worth £231,644, an incredible 975% increase with a similar investment (adjusted for inflation) over the last ten years returning 42.65% growth. * Source:

If we ignore the tax implications, the growth over the last 40 years in the property market, something that we will almost certainly never see again, far outweighs the performance of the FTSE. However, the performance over the last ten years is far less conclusive. This suggests that having a diverse portfolio of stocks and physical property is a fantastic way to achieve your long-term financial goals.

A Final Word

Thank you for reading to the end of this article. If you want to purchase an investment property or build an investment portfolio, please contact us at Corestone. We look forward to helping you take your first steps to financial freedom.

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