Some of the links in this post might be affiliate links, if you use them (which you don't have to) I'll receive a percentage of the money you spent.
Full disclosure, I am currently invested in property. I am sitting in a house that I own with a mortgage, and some of the funds I’m invested in include property companies in their portfolio.
However, I just can’t consider property to be an ethical investment. I do not think the man on the street should be dabbling in property investing, either. This is a very controversial opinion in the world of money blogging, and society as a whole. I know I will never become a landlord, no matter how lucrative it is.
The first rule of Bronni’s Investing Club is that I’m not a financial adviser, the second rule of Bronni’s Investing Club is you can both lose AND gain money when you invest, there is risk involved.
Property isn’t just an abstract thing, people need homes
I can’t start a water company, I can’t start pumping gas into people’s houses and charging them for it, I probably can’t even start a restaurant without some heavy paperwork and council involvement, but somehow it’s not that difficult for me to become a landlord.
I’ve had my fair share of useless landlords. From giant student accommodation companies to just some bloke, none of them have been up to much when it comes to meeting the minimum standards of living you might expect as a renter. I know you probably think, but I’m not a useless landlord! I’d help my tenants! Would you though? Do you have a day job you can just leave if your rental property is flooded? Have you got enough spare cash to fund a new boiler, when there’s a shivering child waiting for one?
I see it again and again that people are willing to take your rent, but think they shouldn’t have to lift a finger in return.
House prices are unrealistic, and investing in property makes it worse
Me and my boyfriend lived in south east London for almost a decade before we moved. We both had okay, secure jobs earning average-ish wages. But still, we would only have been able to get a mortgage to afford the grottiest, barely livable one bed flat in our old postcode. How is that fair? Everyone should be able to afford to live near where they work.
London is probably the worst place in the country for this insane inequality. I used to work in Canary Wharf, where we were surrounded by modern high rise residential buildings. If you looked up at 9 or 10pm at night, out of whole giant towers only one or two floors had any lights on. I have no proof to support this, but I’m convinced most of those flats were owned by overseas investors who didn’t even live there. People are investing in property at the expense of normal people who just want a secure place to live. There’s a huge accommodation shortage in this country. Empty flats, council houses sold off for profit and hiked up rents don’t help anyone.
House prices are at unsustainable levels, and by buying up cheap property, splashing on some paint and laying a bit of laminate down, then quickly selling it at a premium, investors are accelerating the effect.
It’s a more risky investment than you might think
Yes, your mum bought her house for £20k back in the 80s and now it’s worth half a million. Good for her. But we can’t expect the same for us, things are changing.
Property, like any other asset class, is subject to the movement of the market as a whole. However, I consider it to be even more vulnerable than the average investment because of how much your profits can plummet due to government regulation.
The government is catching up with those middle aged property millionaires who were raking in money through their rental empires in the 90s, 00s and early 10s. In 2015, the government began charging extra stamp duty when someone who already owned a property tried to buy an additional one (as a second home, or a rental property, i.e you aren’t selling the property you already have). That just made your investment more difficult to sell to another landlord, and made it more expensive to grow your property portfolio.
Until 2017, landlords were getting away with barely being taxed on their rental income because of mortgage interest tax relief. So if they scooped up £10k in rent in a year, but paid £6k in mortgage interest over the same period, they were only being taxed on £4,000. You see how unequal this is compared to the average wage earning renter? We were all paying high rents while being taxed on our income to try and afford a deposit for a house. A house that’s price has been massively inflated in value by greedy tax avoiding buy-to-letters keen to make even more money by buying more rentals.
In the future, I hope that the government introduces new regulations that would give slum landlords some accountability. This would make property even more unattractive as an investment, because you’d have to actually spend some of your rental income on providing a better standard of living for your tenants.
You can’t “just” sell a house
If I want to sell my funds or shares, it’s pretty quick and easy. Yes, it’s probably a better idea to keep my investments long term. But in an emergency, I could sell them. Your house though? It could take years. Please read this article by Mirror Money editor James Andrews. It took him 18 months to sell his central London flat. This is a beautiful flat in a popular area, not an ex-auction property you bought on the cheap in a wannabe Homes Under the Hammer sitch.
An investment is only worth what you’re able to sell it for. That’s if you’re even able to sell it at all.
Unlike putting money into your pension or stocks and shares ISA, you can’t really dip your toe in with £25. Properties are expensive, and you’re usually agreeing to pay or get a loan for a minimum of £75k. It’s not to be taken lightly.
Property is the pretty face of investing
Traditional investing, for the most part, looks pretty boring. Honestly, I tried my best to make this series look cute, but even then, it was hard! Investing in property is a visual dream, on the other hand.
TV in the noughties was all Sarah Beeny’s Property Ladder and Location, Location, Location. It makes great television, what can I say? Nowadays, Youtubers and influencers are getting in on the game and it’s all a bit more sinister.
On the one hand, Youtubers are the sorts of landlord who can drop everything to come and fix something, and the ones I’m talking about can afford the repairs too. However, one influencer I follow (Patricia, be my friend!) did an interview with a particularly nasty piece of work called Samuel Leeds.
Samuel Leeds sells £12,000 courses to teach you how to be a property investor. A man got into debt to take this course and ended up taking his own life. You can read The Telegraph’s investigation into this self-styled property guru here. This story was also featured from 9:10 onwards on the BBC’s Inside Out programme, watch it here while it’s still live.
I don’t blame Patricia for not knowing about this, I didn’t when I first watched that Youtube video, but property investing is ripe for an MLM style scam.
Your own home isn’t really an investment
I wanted to buy my house. It’s a secure place to live where I am no longer at risk of being sent an eviction notice or having my rent hiked. I don’t see it as an investment. We will always need somewhere to live, and if we sell this house, that money will buy another house, that’s been subject to the same inflation as this one.
Once we no longer need a house, chances are it’ll be sold off so we can spend our final days in a nice care home. Will I care that the house I bought for £227,000 is now worth £1million? No, it’s basically irrelevant to me. You can’t spend your house while you still live in it (unless you go for a dodgy equity release scheme).
Okay, yes if your house rockets in price then you move to a tiny flat in a cheap area, then there will be some profit. But, are you really planning on doing that? I’m not so sure.
What do you think? I know there are people who fundamentally disagree with me out there. Join the debate in my Facebook group.