Buy-to-let returns top all other asset classes

Buy-to-let investments have outperformed all mainstream investments over the past 18 years, study finds

Buy-to-let investments have outperformed all mainstream investments over the past 18 years, with annual returns of more than 16pc, according to a study.
Former economist Rob Thomas investigated how much £1,000 would be worth now if it was invested in various asset classes in the final three months of 1996 – the year buy-to-let mortgages were first introduced.
He said every £1,000 invested in an average buy-to-let property bought with a 75pc loan-to-value mortgage was worth £13,048 in the final quarter of 2013, a compound annual return of 16.3pc.

These bumper returns were largely due to the mortgage, which “magnified” investors’ buying power in a process known as leverage.

A cash purchaser would have seen each £1,000 invested grow to £4,791 by the end of 2013 – a compound annual return of 9.7pc.

The report found the same investment in UK commercial property would have grown to £3,654. If the capital was invested in UK equities it would now be worth £3,082 and UK government bonds would have grown to £2,924. If the money was put in cash it would be worth £1,949. The study did not include gold, which has fallen fast in recent years but was the best performing asset in the 2000s.

Leveraging is potentially risky as interest costs can rocket. But in the period since 1996 returns outstripped the interest owed on the loan.

The research assumed that buy-to-let investors who took out a mortgage started with a single property worth the UK average and reinvested in more properties each time their income provided a 25pc deposit and covered the purchase costs.

Source: http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10788736/Buy-to-let-returns-top-allother-asset-classes.html