Here’s a buy-to-let investor who says the FTSE 100 is a much better bet

Read this if you want to know why one experienced buy-to-let investor much prefers the FTSE 100 (INDEXFTSE: UKX) to property now.

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.

A quick perusal of companies promoting investment in buy-to-let properties (and managing them for you) shows up plenty suggesting anything up to 9% net yields.

I have a buy-to-let property, and I can tell you I don’t get anywhere near that.

I acquired it nearly 30 years ago, and it was specifically intended for letting to students, which at the time worked well — especially as my parents did the same thing and managed it for me. But the student market where I live dried up after a lot of dedicated new accommodation was built, and for years now I’ve relied on the general rental market.

What’s wrong?

So why am I not getting the kind of yields I’m seeing bandied about, and why would I not recommend getting into the buy-to-let market now? My Foolish colleague Royston Wild has explained why a many buy-to-let landlords are getting cold feet these days, and a lot of it is to do with tax and regulatory changes.

But even without those worries, for me the biggest problem has been voids and unexpected costs.

Right now I have a good tenant, but I’m still only getting an annual yield of around 4%. And if you have to pay a manager, you could get even less.

And one earlier tenant in particular was a nightmare. They started off well enough, but started getting later and later with the rent… and only paid up, usually short and with a promise to catch up, after lots of chasing.

Run away

And do you know how I discovered when they’d moved out? By getting a council tax bill! I called to point out that the tenant is responsible for that, to be told nobody lived there. I went round and found the place deserted. And to make matters worse, everything removable had been taken — even all the lightbulbs had gone. I found a pile of bills left behind, including thousands owed for gas and electricity.

The gas meter had been capped, and I left it like that for the summer while I got the cash together and fixed the place up. And when I wanted gas on again, they insisted I had to pay the accumulated standing charge for the months it wasn’t used. Thankfully that was cancelled by the engineer who knew they weren’t supposed to charge when a meter was capped, and he reset the amount on the meter — but having to fight that would have been another obstacle.

I made a loss that year.

There’s worse

And I’ve had other bad times too, with the house empty for nearly two years. I had no rent, and I still had to pay council tax, insurance, minimum energy charges. And I don’t like to even think about the dry rot in the cellar.

It’s hard to compare, but if I’d put my money into the FTSE 100 all those years ago and gone for high-yield shares, I estimate I’d have ended up with around the same overall return — but without all the work.

That includes the very good early years and I’d expect to do nowhere near as well starting today. But it still has to be shares in top quality UK companies for me now.

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.

Views expressed 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

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »