Why I’m ignoring buy-to-let properties and investing in stocks and shares instead

Our writer considers the pros and cons that come with investing in a buy-to-let property and compares it to his experience with investing in stocks and shares.

| 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.

Typical street lined with terraced houses and parked cars

Image source: Getty Images

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.

Investing in a buy-to-let property can be a great method to produce a steady stream of income. Although many people have earned a lot of money with this strategy, it is not one I intend to pursue.

Here’s why.

The cost of buy-to-let

First and foremost, there is a significant, up-front financial commitment. I’d need a huge lump payment or a hefty mortgage to purchase a rental home in the UK, where the average property price is currently over £260,000. Compared to investing in shares, which I can start doing with just a few pounds, the barrier to entry is almost impossibly high for me.

The expenses of owning a buy-to-let home are also an important factor. For rental investors, mortgage and stamp duty rates are greater than for homeowners, and there will be an annual operating expense. That’s not even taking into account the cost of finding renters in the first place. With stocks and shares, I may have to pay a fund management charge or an investment platform fee, but these are minor and predictable in contrast.

Finally, there is the time investment required. A buy-to-let property isn’t a true passive income investment. Renting out a house is a business and it takes time and effort to make it work.

When I buy stocks, on the other hand, I am also investing in the time and effort of the company’s leadership. They are in charge of the company on behalf of all shareholders. I don’t have to do anything.

There are still a lot of advantages to a buy-to-let property. In the long run, property values have outpaced inflation. There is also a reasonably consistent market for rental houses, implying that investors will be able to generate an income stream at any time.

If I had the capital to spend, a buy-to-let might be a good option for me. But unfortunately, I don’t.

Alternative opportunities

Instead of purchasing real estate, I’m investing in firms that have global presence and portfolios of very well-known brands.

One of the companies I’m already invested in is Berkshire Hathaway (BRKB: NYSE). This conglomerate is owned and run by none other than Warren Buffett. Because of that, I have the benefits of a company that owns Apple, Coca-Cola, and Bank of America, and is managed by one of the most successful investors of all time.

However, one disadvantage of buying individual stocks and shares over a buy-to-let, is that I do not influence how a company is run. Owning a buy-to-let is far more work, but with that work comes control.

If I change my mind

Property can be a lucrative investment and if I ever think of adding it to my portfolio, I would invest in Lloyds Bank. Lloyds has been helping to build rental properties up and down the country and could see a significant return on investment in the years to come.

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.

James Reynolds owns Berkshire Hathaway (B shares). The Motley Fool UK has no position in any of the shares mentioned. 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

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »

Investing Articles

Could I use a stock market crash to turn £20k into half a mil in just over a decade?

A stock market crash might sound terrifying to some but it can also present a once-in-a-lifetime opportunity to accumulate generational…

Read more »

Investing Articles

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »