The practicalities of a buy-to-let continue to be relatively challenging. There are various potential pitfalls throughout the buying and managing process for a property investor. Given the uncertain outlook for the industry, the risk/reward ratio may now be less appealing than it once was.
In contrast, investing in the stock market remains very straightforward and simple from a practical standpoint. And with there being numerous tax breaks and opportunities for growth on offer, it could be a worthwhile option for potential property investors in my opinion.
Buy-to-let
Owning and letting-out a property has never been a hassle-free experience. The process of buying a home is expensive, time-consuming and filled with potential risks. Once owned, finding tenants can be challenging, while the costs involved in managing a property, from management fees to repairs, can add up.
Changes to the tax system are making buy-to-let less appealing from a financial perspective. Additional stamp duty must be paid on second home purchases, while mortgage interest can no longer be deducted from rental income for many landlords. And with the prospects for the UK economy being uncertain, the prospect of rental growth may be more limited than it has been in previous years. Moreover, a weak economic outlook may mean that a larger proportion of tenants struggle to pay rent each month.
Stock market
In contrast, buying and selling shares has become increasingly simple in recent years. Online share dealing has slashed costs, and made it much more accessible to a wider range of investors. And with improvements in mobile apps and technology, managing a portfolio is simpler than ever.
From a tax perspective, the government has introduced products such as a Lifetime ISA, which offers bonuses on amounts invested. Meanwhile, tax breaks on pensions help to make them a relatively efficient means of planning for retirement. With the stocks and shares ISA allowance having increased to £20,000 in recent years, it is possible for anyone to build a simple, and flexible, retirement nest egg through investing in the stock market.
In terms of the return potential on shares, there are many high-quality stocks which appear to be trading on low valuations at the present time. This could create opportunities for investors who are looking for an income, or capital growth, for the long term. And while a buy-to-let ties up a large amount of capital in a single asset, it is possible to buy small amounts of a variety of stocks in order to diversify and reduce risk.
Relative appeal
As ever, choosing where to invest depends upon the risk/reward ratios available. In recent years, this seems to have improved for shares, and deteriorated for property. Moreover, buy-to-let is remains difficult from a practical perspective, while buying stocks is a very simple and easy process. As such, now could be the right time to pivot towards the stock market, with the best days of buy-to-let potentially being behind it.