Buy-to-let property has been a popular means of generating high returns for many people over recent decades. House price growth and falling interest rates have combined to produce high total returns for many buy-to-let investors.
However, being a landlord has become increasingly difficult over recent years. Tax changes, increasing regulations, and the day-to-day challenges present in owning property mean there could be an easier way to make life-changing wealth over the long run.
While property investing may be a profitable move for many, it entails significant risk and hard work. For example, there may be void periods that lead to reduced profitability. Furthermore, repair bills can mount up over the long run and reduce your cash flow. And, in some instances, delayed rental payments may cause financial challenges that can impact negatively on a landlord’s wellbeing.
In addition, recent tax changes mean that a higher stamp duty rate and less favourable mortgage interest relief could produce lower returns for property investors. At a time when house price growth is stalling in many parts of the UK, this may lead to buy-to-let investments having a relatively unattractive risk/reward ratio in the eyes of many investors.
By contrast, investing in shares is a relatively simple operation. Online sharedealing means almost anyone can open an account in a matter of minutes, fund it with modest amounts, and start buying a range of shares to benefit from the long-term growth prospects of the stock market.
For those investors who don’t have the time or inclination to research specific companies, tracker funds could be a worthwhile option. They aim to follow the performance of a specific index, such as the FTSE 100. Their costs for doing so are exceptionally low in many cases, often less than 0.25% per annum. And, with the FTSE 100 having returned around 9% per year since it was created in 1984, its profit potential seems to be high.
Furthermore, buying shares doesn’t entail borrowing money. This significantly reduces the risks an investor faces and may mean their risk/reward ratio is more favourable than it would be if they focused their capital on property.
The outlook for the stock market continues to be relatively uncertain. Risks, such as Brexit and the general election, may cause investor sentiment to change in the short run, which could impact negatively on share prices.
However, those kinds of risks are commonplace for investors in the stock market. Over the long run, it offers the potential to generate a high return, with its track record having been strong. In doing so, it could offer a simpler and easier means of improving your financial future compared to a buy-to-let property. As such, now could be the right time to start buying stocks.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019