[Apreche]

There is another difference that is related to risk.

Larger loans allow access to lower risk opportunities.

If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the money I borrowed and then some.

Even if I borrow against all my holdings, I can't afford to make that kind of investment. The only options I have are much higher risk. And as you said, I won't survive a failure. Therefore, while the bank would let me do it, I would be very foolish to try.

[bruce511]

I've owned property to rent in the past. I feel it's worth pointing out to folks keen on this route that, while profitable, it's a Lot of work.

Owning stocks is zero effort. You might glance at your results from time to time. Your fund manager does the heavy lifting (and gets a small % fee for it.)

Owning a property is a pretty constant stream of work. Organizing maintainence. Dealing with complaints. Occasionally evicting non-payers. Finding new tenants. Filtering applicants to filter out the non-payers.

It's so much work you'll likely offload this onto someone rise to do. The cost is not insignificant. (Neither is maintainence.)

The returns may be good, but its not "passive income".

[throwaway2037]

I agree with most of your comments. However, most tax authorities in highly advanced countries view income earned from rental property as passive income, regardless of how much work you need to do. This might be some minor deductions if you act as a real estate agent, but that is a lot of work in most jurisdictions, as real estate agency is normally a highly regulated area of work.

[chgs]

Indeed. Passive income is taxed at a much lower rate than working income in the U.K, and that includes property rents (after paying expenses like a managing agent) and dividends

Capital gains is taxed even lower than that.

[yzydserd]

> Passive income is taxed at a much lower rate than working income in the U.K, and that includes property rents (after paying expenses like a managing agent)

Is that right? I thought that income from property rents (after paying expenses like a managing income) had income tax levied like any other income.

[chgs]

But honest day’s work income has an additional payroll tax which totals about 20% marginal for the majority of people (plot about 60/40 between employer and employee).

Far better to be paid in shares.

[yzydserd]

Oh yes National Insurance Contributions. They’re a bit messed up imho.

The employee pays 8% to NICS on earnings between 12.5 and 50k. For income over 50k, it’s 2%.

The employer pays 13.8%, and some people assert the employee ultimately pays the cost through a lower salary.

[bruce511]

For many reasons, including tax and liability, any serious property owner will have a company structure to own the building, collect rent, pay bills etc. Doing it in your personal capacity is pretty insane.

So yeah, you have all the paperwork to run the business as well.

[throwaway2037]

"[S]erious property owner" -- This phrase sounds like a "no true Scotsman" test. What exactly qualifies as "serious"? I know numerous people who own a bunch of properties and don't have a separate company structure, as there is no tax advantage (in my jurisdiction). They use local real estate agents to find new renters when old renters leave. It's pretty simple. And, the agent also coordinates monthly payments (to the owner) and any repairs.

[chgs]

Or you just pay a property management company, which comes off pre tax.

[RickJWagner]

I had a friend that bought a second house as a rental.

One day he described what happened when his renter left. They had money troubles, so they quit paying bills (including the rent). When they were evicted, he found that they had been throwing their garbage down the stairs into the basement so they didn't have to pay the trash service. The stench was unbearable, and the mess horrendous.

It is not easy money to be a landlord, I figured.

[dullcrisp]

Wanna go halfsies on some residential real estate in a high rent neighborhood?

[throwaway2037]

Everything that I read about real estate investing says you should aim for middle class housing, as the return-on-investment from rental cashflow is (normally) higher that more expensive housing. To be clear: My statement is only looking at rental cashflow, not capital appreciation. To me, there are both important, but separate concerns.

[Apreche]

Sure, but we'll have to go thousandsies, or at least hundredsies.

[tightbookkeeper]

Rich people having more options, and being more insulated from risk, is not news.

[Apreche]

It's not news to the world, but it's news to many.

[tightbookkeeper]

I don’t think so. Stronger and attractive people have more options and opportunity too! This is the kind of thing you can’t lose sleep over.