After the recent FTSE 250 stock market crash, many investors are looking for safer assets to own. For some, that could be buy-to-let property.
However, while investing my property might seem like the safer bet at first, it has some significant drawbacks.
FTSE 250 returns
The buy-to-let property market has suffered almost as severely as the FTSE 250 over the past few weeks. Reports suggest that thousands of landlords have asked their banks for mortgage holidays. Meanwhile, many tenants are struggling to pay rent.
Tax changes and regulations brought in by the government over the past few years have hardly helped matters. What’s more, when the coronavirus crisis passes, a deluge of properties could hit the market, which may impact property prices significantly.
As such, while buy-to-let property might seem like the safer asset right now, there’s no guarantee investors will be better off over the long term.
On the other hand, the FTSE 250 has experienced many setbacks throughout its long history. On every occasion, the index has recovered. In some cases, it may have taken several years, but time after time, the market has always recovered from every setback.
This suggests that FTSE 250 investors are likely to see a positive return over the long term.
Tax benefits
Owning the FTSE 250 also has significant tax benefits. You can own a simple index tracker fund in a Stocks and Shares ISA. This means you don’t have to pay any extra capital gains or income tax on profits received.
The government has significantly increased the tax demands of buy-to-let investors over the past few years.
The same can be said about the level of management required. The great thing about a FTSE 250 tracker fund is that you don’t have to do any extra work. All you have to do is click the buy button, sit back, and let your money grow.
You can also set up a regular investment plan that buys investments on your behalf every month. Most online stock brokers now offer this option. Once you’ve set the plan up to buy the FTSE 250, there’s no further input required on your behalf.
Buy-to-let investing, on the other hand, requires significantly more input. You have to manage the property, mortgage payments, and deal with any troublesome tenants.
You can get a managing agent to help, but this can be quite expensive. And they don’t cover all eventualities. If the boiler breaks down, for example, you still have to fork out the money required to pay for it. This could be an expensive setback.
The better buy
All of the costs and requirements of being a landlord mean the total returns of buy-to-let property are not that attractive.
The FTSE 250, meanwhile, produced a total annual return of 12% for investors for the three-and-a-half decades to the beginning of 2020.
At this rate of return, an investment of just £10,000, with a subsequent monthly contribution of £200, would grow to be worth £1m in 30 years.
To achieve this return, all you need to do is to set up a regular investment plan.
So what are you waiting for? Now is as good a time as any to start investing in the FTSE 250.
