Brendan - Property Investment advice 2004

[Brendan Burgess]

I have just found the Key Post from which the above quote is taken.

If you have time, read the entire thread for the context. If not, here are some quotes. Some have interpreted the quote in the first post to mean that I was recommending investing in property.

IF YOU are investing in property, you should take out an interest-only mortgage

You should borrow the maximum amount possible, bearing in mind the usual warnings about borrowing to invest.

However, if you are not paying tax at 42pc, you should probably not be borrowing to invest in property at all.

You should not look at any individual property or individual loan in isolation. Look at your total assets and borrowings.

Investing in property is a risky business...

Bear in mind that this was October 2004 when I was frequently criticized for daring to suggest that investing in property was risky!

If there is some long-term change to the investment environment, where you can no longer expect returns to exceed the after -tax cost of borrowing, then you should pay off your loans.

If the interest rates rise to such an extent that you no longer expect to get a net return on your investment in excess of your net cost of interest, then you should repay some of the capital.

So even back in 2004, I was pointing out the possibility that interest rates could rise.

It's a risk which you can afford to take, if you believe that property will rise.

All in all, at a time when property prices were rising and few believed that they might fall and at a time when interest rates were low and people felt that stress testing was over regulation, it was a balanced, conservative piece of advice.

Would I say anything different now with the benefit of four years?

Over the long term, you can expect to get a return well in excess of 1.9pc a year in an equity fund. So you should invest this money rather than pay it off your mortgage.

With the benefit of hindsight, the best decision back then would have been not to invest in either properties or equities, but to stay in cash.

You should borrow the maximum amount possible, bearing in mind the usual warnings about borrowing to invest.

If I was writing this article today, I would place more stress the risks of borrowing to invest

I believe that the equity market is really great value at the moment. If I had an interest only loan on an investment property, I would not be paying it off. I would be buying shares instead.


brendan