Why I’d dump buy-to-let property and buy this investment instead

Michael Taylor looks at why he’d ditch buy-to-let in favour of this stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buy-to-let investing has certain advantages over equities. It’s tangible, and you can see exactly what you own.

People are always going to need somewhere to live. And there’ll always be people who can’t afford or choose not to jump on the first rung of the property ladder and pay rent instead. 

That’s why some people feel a lot more comfortable owning property than stocks. But those who focus solely on buy-to-let investing miss out on the many benefits of the stock market, including (but not limited to) diversification, tax-free profits, and exposure to some of the world’s best companies. 

Unlike buy-to-let, where we have to do all of the work, with stock market investing, we can simply buy shares in a company, and the directors of that company and all of the employees then work for us. While I’m not shy of hard work, I certainly prefer others to do it for me if I don’t have to get stuck in myself!

That’s why I’d dump buy-to-let and buy this stock instead.

Rightmove is a cash generative machine

Rightmove (LSE: RMV) came to the stock market in 2006 and since that period the board and employees have worked their socks off for shareholders. Anyone who decided to take the IPO 14 years ago has seen their investment increase well over 15 times. 

That’s a fantastic return for shareholders, and while the low hanging fruit may have been gathered already, the sheer amount of cash that Rightmove produces means that this stock may have further left to run.

Of the £87.45m in after-tax profit generated, the company produced cash flows from operations of £90.73m. This is not a business that turns a profit and fails to convert any of those profits into cash – it’s a business that churns out more cash than it makes in profit. 

This is most likely due to positive relationships with suppliers. For example, if a company pays its suppliers on a 60-day term but is paid by its debtors on a 30-day term, it means the company collects its cash sooner than it has to pay cash out. 

Rightmove’s moat

While many companies have tried to challenge Rightmove, so far no other competitor has been able to dislodge the company from top spot. The beauty of the business is that it has a scalable online platform, and estate agents pay the business to list properties. This in turn kicks in a positive self-reinforcing network effect; the more estate agents that list properties on the platform, the more potential house buyers will check the site out and drive traffic to the platform. More house buyers means more estate agents signing up!

Rental yields

One of the things we look for in buy-to-let is the rental yield and also what yield we are getting on our capital employed. Well, that metric also exists in investing too, with return on capital employed (ROCE) being used to measure a company’s return on the capital that it uses to invest in itself.

Rightmove has a three-digit percentage ROCE, and is clearly more effective than owning buy-to-let properties, in my view. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Michael Taylor has no position in Rightmove. The Motley Fool UK has recommended Rightmove. 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.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Dividend Shares

How investing £15 a day could yield £3.4k in annual passive income

Jon Smith flags up how by accumulating regular modest amounts and investing in dividend shares, an investor can build passive…

Read more »

Investing Articles

Could this be the FTSE 100’s best bargain for 2025?

The FTSE 100 is full of cheap stocks but there’s one in particular that our writer believes has the potential…

Read more »