Warren Buffett is considered to be one of the best investors of all time. He’s made hundreds of billions of dollars of profits in the stock market for himself and his investors over the past few decades. However, despite his golden reputation, Buffett has tended to stay away from property. And it’s for that reason why I’d ditch buy-to-let property and follow the Oracle of Omaha’s investment tips instead.
Warren Buffett and property
Many successful investors have a portfolio of properties. Many have also made a significant fortune investing in this asset class. So it may seem strange that Buffett has stayed away.
It’s not strictly true that he’s avoided property altogether. The billionaire investor owns part of a farm and his own house. His companies also own properties. Nevertheless, by and large, Buffett doesn’t own a significant amount of property.
The investor has always believed that it’s better to own highly productive businesses. These tend to be blue-chip companies with strong competitive advantages and wide profit margins. His track record stands testament to the fact that this strategy works.
Highly profitable blue-chip companies have produced better returns than buy-to-let property over the past few decades. It’s also easier to buy and sell blue-chip stocks. It takes just two days to settle a stock transaction, and some shares trade for less than 10p. The average property price in the UK is around a quarter of a million pounds. Meanwhile, the average property transaction can take months to complete.
So, stocks are easier to buy and sell, are cheaper, and have, in some cases, yielded better returns than buy-to-let property.
Low returns on buy-to-let
There are some other drawbacks to owning rental property as well. For example, the government has recently introduced tax changes that have eliminated the lucrative tax benefits landlords used to enjoy. Paying a letting agency to manage tenants can also substantially increase costs.
Research has shown that the average buy-to-let investor makes a return of just £2k a year. That’s based on an average property price of £183,278. By comparison, a blue-chip stock such as GlaxoSmithKline could provide shareholders with a dividend yield of 5% a year, or £9,150 on a similar investment. Looking at these figures, I know which asset I’d rather own.
That’s why I’d ditch buy-to-let property and follow Buffett’s investment tips instead. He focuses on finding high-quality companies which can then produce large returns for investors.
He only buys stocks in companies he knows well and trusts. This approach has produced huge returns for the investor and his followers over the past few decades.
By replicating the strategy, I’m hopeful I can achieve attractive positive returns without the drawbacks that come with investing with buy-to-let property.
The post Why I’d ditch buy-to-let property and follow Warren Buffett’s investment tips appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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 2020