There was a time when buy-to-let was the darling asset class of UK investors. It seemed like new property millionaires were springing up every week thanks to a combination of rocketing house prices and booming rents. What’s more, it provided a way for Britons to make a decent return on their money without having to worry about stock market crashes and the like.
Unfortunately the dream of making a million from buy-to-let has become a nightmare for many. The ‘feelgood factor’ among landlords has sunk through the floor as profits have dried up. It’s why the number of mortgages signed off for buy-to-let purposes has gradually receded during the past five years or so.
Costs up, property prices down
So what has gone wrong? Sure, rents continue to rise in most parts of the UK but costs are rocketing too. Running costs are up, tax liabilities are rising, and fees have escalated because of changing legislation (like the Tenant Fees Act) too.
An end to rocketing property prices, however, is the main reason why making a million from buy-to-let has become a colossal challenge. Things threaten to get worse with Brexit and now Covid-19 damaging the homes market, too. Latest Nationwide data showed the average British property price fall for the first time since 2012 in June.
Advantages of the Stocks and Shares ISA
It’s becoming increasingly clear that buy-to-let isn’t the way to try and make a million from your hard-earned cash. A much better way to do that today is to create a balanced portfolio of UK shares through a Stocks and Shares ISA.
Putting your money in one of these ISAs instead of investing in buy-to-let has numerous advantages. You don’t have to worry about the beady eye of the taxman as all your profits are immune to income tax and capital gains tax. You don’t have to stump up a huge amount of cash to buy a property, pay big stamp duty costs and the like before you start earning a return on your money.
A better route to £1 million
Stocks and Shares ISA investors can expect to make bigger returns on their cash than buy-to-let owners can. The rental average yield on a two-bedroom property currently sits at 5.6%, according to Howsy. By the time those colossal costs I mentioned earlier are accounted for it leaves little left in the way of profit.
This is why investment in stocks is a much better option. Based on an average minimum return of 8% that long-term investors can expect to make, someone who begins drip-feeding £500 into a Stocks and Shares ISA a month at the age of 30 will have £1.1m in their pocket when they retire at 65.
So don’t waste time and money on buy-to-let. Drip-feeding money into a Stocks and Shares ISA is a much better way to try and make a million.