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I recently received an enquiry which simply said that they had inherited some money and asked, “What would you suggest we do with the money; buy a rental property or invest in the stock market?”. This question is not at all unusual, so a great topic for this space.

Like many questions, there lies within it many others, as the subject is so much more complex than it first appears. Even the title of this article is confusing when it comes to renting, since “rentable” in English means good enough to rent out, whereas it translates to profitable in French, giving me the perfect double meaning title!

Likewise, there are many ways of deriving an income from property and also many ways of investing in the stock market. In both cases it depends on how much effort and expense you are willing to go to, and the desired return. What people also forget to factor in, is the all critical time horizon and need for access to their money.

Seasonal rents and chambres d’hôtes, for example, will usually make a better return than long term rental, but require that much more effort, unless you engage people to do the work, but then the expense increases.

I recently spoke to someone who said that they would never invest in property again, having had a very bad experience with one property, which had caused them to lose money. They were very surprised to have someone who advised on financial investments explain why property can be a great investment and that the property, itself, was probably not the creator of the loss.

The issue with property is the lack of liquidity. Being able to access capital is often a problem. The person I spoke to, who hated property, simply needed the money and so were forced to sell at a time when markets were bad. This is not a great position to find yourself in, no matter how your capital is invested. Selling out in a buyers’ market will always lead to loss.

Before advising on property versus financial investments, it is important to find out what the objectives are. We come across many people who are semi retiring to France. They have stopped their career, but want something to do, work wise, when they are here, preferring to be busy. Renting property often gives people the ability to be busy active and meet people, as well as provide an income.

There are also many who have no wish to do anything remotely workwise, as they have been exhausted by a tiring career and want to relax. Running seasonal rents or chambres d’hôtes is probably not the way to go. Even long-term rents can provide issues. I have seen rent unpaid, property left seriously damaged and tenants suing landlords for all kinds of false / exaggerated misdemeanours that have landed them in court. No problem for someone who views this as their day job, but not great for those who wish to lead a more relaxing way of life.

Similarly, stock market-based investments have their own dynamic. One can operate as a day trader, buying and selling shares, managing an active portfolio. This, however, is often a full-time occupation, and is contrary to engaging a financial professional to ensure things are managed in a way that suits them with little effort.

Then there is the question of risk.

I had a client who bought several apartments in a university town with a high-speed rail link, feeling confident that income was guaranteed. The railway station moved to another town, the university closed its main campus, also moving to another town and they were left with property that no one wanted and were eventually sold for half the buying price.

Likewise, buying shares in a single company means bankruptcy results in total capital loss. Buy ten companies, and with one bankruptcy and 10% of the investment is gone, buy 100 companies 1% is gone, 1,000 companies, just 0.10%. Diversification is key for any investment, be it property or shares.

Buying one big property or shares in one big company adds risk and reduces flexibility.

From a return perspective, it is impossible to say which one will perform better and often having both is a good balance, but lifestyle matters a great deal, as this is often the great motivator for most people moving to, or living in, France.

My advice is to consider, whether investing in property or the markets, the following:

1) How much time do you want to commit to your investment?
2) Do you have the expertise to do this in the best way possible?
3) The cost in engaging any outside expertise.
4) What are your expected returns?
5) The level of risk you are prepared to accept and to limit that risk.
6) Give very serious consideration to time horizon and plan when and how you might wish for access to the capital.

There may be many other things to consider, but these are key.

Whatever you do with your money, it should not cause you anxiety or worry, but enable you to enjoy your life in France.

This article was first published in the Connexion in November 2019