Is buy-to-let property a better investment than stocks?
Buy-to-let (BTL) property has historically been a very popular for British investors. And in the past, they’ve generally done well from BTL, profiting from both house price appreciation and solid rental yields.
But is investing in a buy-to-let property a better idea than investing in the stock market? Right now, I’m not so sure. Here’s a look at four reasons stocks beat BTL as an investment in the current market environment.
With UK property prices having soared in value over the last decade, the rental yields on offer from BTL properties are generally quite low at present. This is because rent prices haven’t kept up with property prices. While it’s still possible to find hot spots that do offer high rental yields if you do your research, the average nationwide rental yield is just 3.6% at the moment, according to insurance specialist Direct Line.
With stocks, you can potentially pick up a yield that’s significantly higher than that with much less effort. As I detailed here, it’s not that hard to put together a simple blue-chip portfolio that yields around 6% at present. Furthermore, if you invest within an ISA, that income will be tax-free. A 6% yield tax-free for doing nothing? That a no-brainer to me.
Another key advantage that stock market investing has over BTL property is that it’s significantly less hassle. With stocks, you can invest in a portfolio and then leave it to work for you. Essentially, you’re letting company management do all the hard work while you spend your time doing what you enjoy.
However, with BTL property there’s a whole lot of things that need to be taken care of. For example, you need to ensure that your property is always tenanted (with good tenants). If your property is without tenants for a few months, or your tenants don’t pay the rent, you may have to fork out the mortgage payments yourself. You also need to make sure all repairs are sorted out promptly. And don’t forget all the new BTL regulations that is making life more stressful for landlords, such as minimum energy ratings. In short, BTL is a lot of effort.
Another benefit of stocks is the liquidity that they offer. If you want to take some profits off the table and free up cash, you can. Hit the sell button and your money will be in your bank account within days. The same can’t be said for property. You can’t just sell one bedroom, can you? If you do want to sell your property, you’re looking at a lengthy process and a load of fees.
Lastly, stocks allow you to spread your money out more effectively than property does. With a BTL property, you’re putting all your eggs in one basket. What happens if UK property prices tank as a result of Brexit? In contrast, with stocks, you can invest in many different companies, sectors and geographical regions, and this can help lower your investment risk.
Buy-to-let property has been a good investment in the past, but with low yields on offer at present and new regulations making life more difficult for landlords, the asset class is losing appeal. In my view, a long-term investment in the stock market could be a better idea.
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