If you’re going to dip your toe into choppy waters and invest for the long term, you may as well focus on quality growth stocks.

This is what I think (hope) I’ve done with two new additions to my own portfolio this month. Drum roll, please…

Market leader

Some might baulk at my decision to begin building a stake in property portal Rightmove (LSE: RMV). After all, the housing market has pretty much collapsed since the outbreak of the coronavirus outbreak and could struggle to bounce back in its aftermath.

So, what’s got me buying? There are a few reasons.

First, FTSE 100 constituent Rightmove is the undisputed market leader in what it does. For many, it is the housing market. All attempts by competitors to snatch user eyeballs to date have failed. That’s the sort of economic moat I look for.

Second, this is a company that generates staggeringly high returns on capital employed (ROCE). This is the amount of profit it makes relative to the money it invests in the business.

For fund managers like Terry Smith, ROCE is one of the key metrics to look for when ascertaining whether it’s worth buying a particular growth stock. And he’s not done too badly with this strategy. 

Third, Rightmove has a great balance sheet with £24m net cash at the end of 2019. The recent decision to withdraw the final dividend will help bolster things further.

Fourth, Rightmove’s share price — at the time of writing — is 30% down from where it peaked in February. While anchoring to a historic price should be avoided, I suspect a fair bit of negativity is already priced in. 

But might the shares continue falling? Absolutely! And it’s for this reason I’ve only put a very small amount of my capital to work for now.

Another top growth stock

A second company I’ve started buying in April shares a lot of Rightmove’s characteristics and attractions. It’s an online business with a great brand, high returns on capital and stonking margins. Unlike Rightmove, however, this company’s services are popular with those looking to save rather than spend money.

Step forward price comparison specialist Moneysupermarket.com (LSE: MONY). If we truly are heading for the mother of all recessions then I think it likely traffic to the FTSE 250 member’s site will only increase.

People will still need to renew contracts and policies in tough times, but they’ll be more motivated than ever to do so as cheaply as possible. While dependent on what providers, such as banks and insurance companies, are willing to offer consumers, the firm’s multiple revenue streams should also give it some protection, even if some products are withdrawn. 

Like Rightmove, Moneysupermarket’s finances look steady. The company had net cash of £30m at the end of March and has decided to go ahead with paying its final dividend for last year.

Again, I’ve only bought a small slice for now. But I’ll definitely be looking to add more if (and that’s a sizeable ‘IF’) markets sink back to levels seen in March. 

The post This FTSE 100 giant isn’t the only growth stock I’ve started buying appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Moneysupermarket.com and Rightmove. The Motley Fool UK has recommended Moneysupermarket.com and Rightmove. 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.

For what it’s worth, I’m also inclined to be more bearish than bullish right now. That said, I’m very aware that trying to predict the direction of markets, at least in the near term, is a waste of time.

What I can say without any hint of sensationalism however, is that a crash is coming. We just don’t know when.  

Regardless of timing, here’s how I’d deal with it. 

Be prepared

The best way to deal with a market meltdown is to anticipate it: get your finances in such a state that you know you’ll able to ride out any volatility without losing sleep. “Forewarned is forearmed“, as the saying goes.

Ultimately, this means checking that the way your money is allocated matches your risk-tolerance. Since they often fall the hardest, there’s no point holding just stocks if you panic at the first whiff of trouble.

Stocks should remain the core of your holdings, but a solution would be to increase your exposure to other assets, such as bonds, property, gold and cash. These are unlikely to give you a better result than equities over the very long term, but should help stabilise your portfolio in difficult times.

Tweet less, read more

This isn’t the place for a detailed analysis of the benefits and drawbacks of social media. Notwithstanding this, I do question the usefulness of sites like Twitter and Facebook (and reading highly emotive posts) during market crises. 

A solution for making it through a meltdown is to read more about how frequent they actually are. Aside from your regular dose of the Fool UK (naturally!), I’d recommend the writings of US psychologist Daniel Crosby — author of ‘The Laws of Wealth‘ — for this. Clearly, the classic thoughts of Warren Buffett and his teacher, Benjamin Graham, are always worth revising.

Ditch ‘the twitch’

A third recommendation is deleting anything on your phone relating to your investment account(s).

Since we’re long-term investors, compulsively checking your holdings through mobile apps is counterproductive but particularly so when the next crash happens. “A watched pot never boils” can be adapted to “a watched pot never boils but continually fretting over your portfolio can breed unnecessary action and reduced returns“. Not quite as catchy, but you get the gist. 

If you’ve done the groundwork to get things in order, you should be able to stay logged off until the storm passes. 

Get a watchlist

Having prepared yourself for the worst (and with cash on hand), you can now take steps to profit from a crash as and when it happens. For me, this starts by drawing up a list of stocks I’d want to buy on any share price weakness. 

To be clear, buying when everyone is selling sounds easy in theory but is very difficult to do in practice. Faced with financial ‘apocalypse’, it’s remarkably easy to forget that stock markets chug higher over time, despite enduring similar crises in the past. 

Should you be able to rise to the challenge, however, you can be confident that the end result will be worth holding your nerve for.  

The post Do you fear a market meltdown? Here’s what I’d do appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. 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.

That said, there are certain areas of the UK property market that do look attractive right now, to my mind. For example, the market for large, strategically-located warehouses is booming at the moment due to the growth of online shopping – for every extra £1bn in online spending, an additional 1.125m square feet of warehouse space is required. And I’ll point out that it’s possible to invest in this niche area of the real estate market, tax-free, through an ISA account. Here’s a look at how I’d invest.

Online shopping play

One of the best ways to get exposure to this exciting area of the real estate market is an investment in FTSE 250-listed real estate investment trust (REIT) Tritax Big Box (LSE: BBOX).

It owns a £4bn portfolio of advanced warehouses (known as ‘big boxes’) across the UK that are let out to some of the biggest names in retail such as Amazon, Tesco, B&Q and TK Maxx. These big boxes are modern, highly efficient, and strategically located, enabling retailers to hold goods for distribution to other parts of the supply chain or directly to consumers.

You can invest in BBOX shares, tax-free, through a Stocks and Shares ISA. 

Capital growth potential

The investment case for Tritax looks compelling, in my opinion. Not only does the company operate in an industry that should benefit from a powerful long-term trend (the growth of e-commerce) but it also has a highly experienced management team with a strong track record of delivery.

Given the stock’s reasonable valuation (P/E ratio of 20.7) today, I see the potential for decent capital gains over time as the company grows in size and expands its portfolio. I’ll point out that analysts at Citigroup recently raised their price target for the stock to 186p – nearly 30% higher than the current share price.

Big dividends on offer 

In addition, the stock has substantial income appeal. Since paying its first dividend in 2014, BBOX has notched up four consecutive dividend increases. For the year just passed, its dividend target is 6.85p per share, which at the current share price, equates to a healthy yield of 4.7%.

The company has said that, due to the quality of its portfolio and its customer base, it’s confident that it can continue to deliver secure and growing dividends to shareholders, as part of an attractive total return over the medium term, irrespective of conditions in the wider economy.

Overall, I see considerable investment appeal in Tritax Box Box and see it as a great (hassle-free) way to get exposure to a high-growth area of the UK property market. I hold the stock in my own ISA and I plan to hold it for the long term.

The post Forget buy-to-let. Here’s a UK property investment I’d buy in 2020 instead appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Tritax Big Box. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Tesco and Tritax Big Box REIT. 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.

Once you wade through the waffle, however, it seems clear to me that this is one company that should still be avoided like the plague — and not simply because it was once a core holding for fallen fund manager Neil Woodford. 

Stable…for now

Revenue was very slightly up to £64.8m on a pro forma basis over the six months to Halloween, with almost three-quarters of this amount coming from the UK (and the remainder from the company’s operations in Canada).

This, however, couldn’t save the former market darling from swinging to an operating loss of £1.2m for the period. Once the impact of closing its businesses in Australia and the US are taken into account, a loss of £14.1m was recorded. 

As one might expect, attempts were made to accentuate the positive. Fairly meaningless numbers, such as the fact that Purplebricks had saved its customers over £150m in commission over the period, were highlighted. Relatively new CEO Vic Darvey also stated that management was “very pleased with the progress made” given the generally skittish housing market, adding that “diverse revenue streams” and 12% year-on-year growth in the average amount of money it is making per instruction had helped smooth things out.  

Remarking that the business is now “stabilised” is one thing, but I think the suggestion that Purplebricks is “enjoying profitable trading” is stretching things somewhat.

Cautionary tale

Today’s market reaction might not raise any eyebrows, but it’s worth reminding ourselves just how poor an investment the company has been lately. 

At the beginning of the year, Purplebricks’ shares were trading at 147p a pop. Go back to August 2017 and the very same stock was around 485p. As I type, the price is 104p.

Could this have all been foreseen? I think so.  

Purplebricks is a cautionary tale of what happens when companies try to grow too quickly. As mentioned quite a while ago, it’s risky expanding into new markets when you’re still attempting to verify the business model back home.

Indeed, this desire for growth at any cost is coming back to haunt the business and beginning to impact its balance sheet. At £41.6m, Purplebricks’ cash position at the end of October was 34% less than where it stood just six months earlier (£62.8m).

Not that management seems rattled, stating that it “remains confident” of hitting its medium-term target of holding a 10% share of the UK market. Personally, I’m struggling to see a catalyst for another purple patch that will be sufficient to raise it from the 4.1% share it held at the end of October. The company’s TV ads may have grabbed attention, but so too has the fact that it charges a fee to sellers even if it’s unable to shift their property. That might be a risk worth taking when the market is buoyant, but it becomes a significantly less attractive proposition in a Brexit-obsessed, recession-fearing UK.  

All told, today’s numbers haven’t changed my view on Purplebricks. I’d leave it to the traders and focus instead on finding quality businesses that can be held for decades.

The post Why I’m still avoiding this former Neil Woodford-approved growth stock appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. 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.

That said, there are other areas of the UK property market that offer investment appeal right now. And one area that is booming at present is the warehouse sector. Once considered a boring sub-sector of the property market, demand for warehouses is skyrocketing thanks to the boom in online shopping. So how can savvy investors profit?

Strong demand for warehouse space

It’s no secret that the way we shop has changed dramatically over the last decade. Gone are the days of wandering the high street for hours looking for a new TV, pair of shoes, or dress – these days consumers are often likely to visit websites such as Amazon, ASOS, or Boohoo and order their goods online.

Naturally, this shift to online shopping has created a strong demand for warehouse space, as online retailers need somewhere to store their goods. Indeed, according to the CBRE 2018 Global Industrial & Logistics Prime Rents report, the online shopping boom has doubled the demand for warehouse space in the last decade.

For every extra £1bn of online retail sales in the UK, retailers need to find an additional 1.125m square feet of distribution space. Yet it’s not always straightforward to locate new warehouses – supply is limited and build costs are high. So, there are attractive supply and demand dynamics at play here. And companies that specialise in managing warehouse space are profiting.

An easy way to profit

One of my favourite ways to play this theme is FTSE 250 stock Tritax Big Box (LSE: BBOX) – a property company dedicated to investing in very large logistics facilities known as ‘big boxes’. The £2.5bn market cap group owns an enviable portfolio of big boxes across the UK that are typically fully-let on long leases to blue-chip tenants such as Amazon, B&Q and Argos, meaning the group looks well placed to generate consistent returns for investors in the years ahead.

Full-year results from Tritax, released in early March, showed another year of strong progress. The value of the group’s property portfolio surged 31%, while operating profit increased 21%. The company also hiked its dividend by 4.7%, marking four consecutive dividend increases since the group’s first dividend in FY2014, and Chairman Richard Jewson stated that the market had remained “robust” despite Brexit uncertainty.

BBOX shares offer an attractive dividend yield of around 4.5% right now, which can be tax-free if the stock is held in a Stocks & Shares ISA. I’m expecting long-term capital growth here too, despite the fact the stock currently trades on a slightly expensive P/E ratio of 21. Overall, I see BBOX as a much easier way to profit from property than buy-to-let. With online shopping likely to continue to drive demand for warehouse space, the stock looks primed to deliver robust returns for investors in my view. 

The post Buy-to-let looks highly uncertain right now. I’d invest in this property instead appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Tritax Big Box REIT and Boohoo. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and ASOS. The Motley Fool UK has recommended boohoo group and Tritax Big Box REIT. 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.

Income potential

Picton is a closed-end investment company that focuses on UK commercial property. Shareholders benefit from the rents paid on the properties, which is paid out regularly as a dividend. The dividend currently stands at a healthy 4.3% and is covered 2.8x, which is well above the 1.5x coverage that is a rule of thumb for well protected dividends.

A closed-end investment company is one that does not issue new shares, therefore the price of the shares is reflected in the demand for them rather than the underlying value of the assets. Picton currently has approximately £674m of UK property, and after you consider cash and debt, that means each share has a ‘value’ of 92.2p compared to the current price of 88.2p. Therefore this structure for the company occasionally gives you the opportunity to buy shares at a discount to the net asset value of each share.

The Brexit problem

There are concerns about the impact that Brexit will have on the value of UK property and I suspect this is the main reason why Picton is currently trading below its net asset value. Fortunately, I think the firm’s management has spread the risk of its portfolio well. The industrial sector is where the highest weighting of commercial property is located, which is seen as one of the safer areas. In addition, its portfolio is sufficiently diversified so that risks are somewhat mitigated in the event of a chaotic Brexit.

Preferential asset class

The main reason that I’d buy this share over a buy-to-let is for the benefits of owning shares over property itself. There are a lot of costs associated with buy-to-let that need to be considered before you can start thinking about your profit. Stamp duty, maintenance, and insurance to name just three. On the other hand, shares require only a small fee of around £10 to purchase and investment companies will then charge an ongoing fee for the management of the fund. In the case of Picton this is 2% which is considerably less than would be required for a buy-to-let.

Shares in an investment company also offer you diversification and liquidity. When you own shares in Picton you hold property in a wide variety of locations that is exposed to a range of sectors. This reduces the risks that you would face if you owned just one property. You can also easily buy and sell shares in a company (known as good liquidity) if you need to access cash or become concerned about your investment. By comparison, it could take months and cost thousands in fees to sell a property.

Long-term income

I think that Picton offers a much more attractive long-term income investment than buy-to-let. Brexit may be casting a shadow over all UK property right now, but it will stabilise eventually and  this is a solid investment for someone who wants to own bricks and mortar without the headaches.

The post Buy-to-let yields are plummeting, here’s one property stock I’d buy instead appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

RobertFaulkner1 has no position in any of the shares mentioned. 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.

Well, that would be nice, wouldn’t it? If we see the cost of homes plunging to half their value now, I’d make some drastic changes to my investing strategy. I’d pile into property and property-backed investments because the great disconnection between prices and affordability will have mended. Once again, property would be affordable, and I think that would sow the seeds for the next bull market in real estate.

The two-decade property bull

I can remember the last time that prices dropped so low that property investing seemed like a no-brainer. It was around 21 or 22 years ago, and it’s etched in my memory because I did well in property in the following bull market myself. Some friends of mine recently sold a property they bought back then too. I did a quick back-of-a-fag-packet calculation and worked out that the price at which they sold was around double what they ‘should’ have made if the value of their home had merely kept up with inflation over the past couple of decades.

I think my rough sums help to illustrate that something is out of kilter in the property market. And, oh, how many of us have been willing prices to plunge. Prices have been so high for so long that a whole generation has almost been locked out of affordable property.

However, through 2018 there were signs that the property market could be topping. At the very least it seems to have paused its meteoric rise. Could 2019 finally be the year that we see prices fall in a meaningful way? Maybe. And one thing that seems to be dragging on buyer and seller confidence is the long-running Brexit saga. Of course, we’ve still got to pass the official EU leaving date of 29 March, and any extension period if one arises. Then, after that, we need to settle into the new post-Brexit environment. I think the whole Brexit-thing has the potential to dampen enthusiasm in the property market for the rest of 2019.

Two ways for affordability to be restored

Overlay the affordability issue, and it won’t take much to get the market sliding, in my view. How about recession in Europe after Brexit? Or rising interest rates making mortgages more expensive to service? It might feel like fantasy given how low interest rates have been for so long. But look at the economic indicators Britain is throwing off at the moment: massive employment, wages rising faster than inflation, and the biggest budget surplus on record in January. Indeed, the UK is trading well and things could keep on getting better, which could push inflation higher. The traditional damper for inflation is higher interest rates.

Then again, with wages on the rise, perhaps we’ll see more stagnation in the property market allowing affordability to catch up, rather than a dramatic plunge in property prices. Either way, I see the buy-to-let investment proposition as unattractive until property is affordable again. Yet there’s a massive opportunity to invest in the stock market, and the uncertainty of Brexit could be helping that situation. Dividend yields, in general, are higher than they’ve been for years, so that’s one market I would pile into. 

The post Is the great property market crash of 2019 almost upon us? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold has no position in any share mentioned. 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.

This was possible as you could easily buy a home with a mortgage. The profits would cover the interest on your mortgage and provide an income, or you could put the money toward paying off the mortgage to increase your assets. This was once a fantastic option for those who were willing and able to participate. However too many rental properties coupled with a lack of new supply has made it very difficult for new buyers to find a home, which has made BTL landlords a target for the government.

A dangerous move?

The government has introduced a new system to change the way tax is calculated on rental income. The result does not have much of an impact on the basic rate taxpayer, who will essentially still pay 20% tax on profits after expenses and mortgage interest is deducted. However, higher rate taxpayers (those who earn over £46,350) will effectively pay 20% tax on all rental income, whereas previously, interest payments were fully tax-deductible.

The effect of this is that it will make owning properties with low profit margins very difficult for higher rate taxpayers. This could diminish the size of returns or even lead to rental income becoming insufficient to pay off interest that is due on the mortgage. These changes will not come into full effect until 2020 but if I was a higher rate taxpayer, I would not be considering buy-to-let at this time. Even if you can make a profit after interest, any serious maintenance expenditures could still eat into both that profit and your savings.

Safe as houses

In addition to income, another reason to invest in BTL has been the presumption that the value of the property would increase over time. It is true that UK house prices have outperformed the FTSE 100 over the last 20 years. But the ‘cons’ are starting to outweigh that big ‘pro’. New buyers will now face a huge increase in fees that will eat into any profits; home buyers now pay 3% stamp duty with an additional 5% stamp duty for homes in the £250,000 to £925,000 bracket; and you will also pay at least 18% tax on any capital gains you make from the sale of a second home.

Build savings for retirement

One of the main benefits of investing in property is that you can buy it with other people’s money (a mortgage) and this advantage remains. However with the increases in tax and stamp duty in addition to capital gains, I think investors with cash now have much better options than putting down a deposit on a second home. Taking out a tax-free stocks and shares ISA can provide investors with a wide range of options that do not require significant risk or high levels of knowledge of the stock market. My recommendation for a new investor would be a diversified tracker fund paid into with small regular payments to smooth out market fluctuations.

The post Building a retirement fund? Why I’d avoid buy-to-let appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

What we don’t like

We don’t like the high execution costs of getting in and out of property. We don’t like the illiquidity of the property market. We don’t like the affordability of property compared to the average wage. We don’t like the idea that base interest rates could rise from where they are now and choke off demand for property. We don’t like the government’s onerous tax regime surrounding buy-to-let property. We don’t like the lack of investment diversity often necessary with buy-to-let property. We don’t like the big bets people tend to take on one asset. We don’t like the idea that the investment is geared because of mortgage finance. And we definitely don’t like all the hassle that owning and renting out a property entails. You get the idea.

What we do like

Instead of buy-to-let, many Fools have been advocating that you buy shares in property-backed companies and funds. For example, well-known UK fund manager Neil Woodford has his fund’s holding shares in NewRiver REIT and Regional REIT. Meanwhile, during 2019, I’ve written articles taking a look at Sirius Real Estate, UK Commercial property REIT, London Metric Property, Palace Capital, Schroder European Real Estate Investment Trust, CareTech Holding, MedicX Fund and TR Property Investment Trust. 

But I haven’t covered all the property-backed companies listed on the London stock exchange. For example, you could also look at RDI REIT, F&C Commercial Property Trust, Intu Properties, Primary Health Properties, Safestore Holdings, St. Mowden Properties, Tritax Big Box REIT, Workspace Group, Great Portland Estates, Land Securities Group, British Land Co and others.

Is property enough?

There are many property firms for you to research, but I think it’s also worth considering whether you want all your money invested in one sector – property. With buy-to-let, you often don’t have much choice about that because the investment is so large it can take all your funds to get it going. With shares, the situation is different. I’d recommend investing at least £1,000 to make the execution costs of buying the shares worthwhile. But you could diversify across as many as 20 different shares or more and each one in a different sector, such as pharmaceuticals, retail, oil & gas, mining, finance, insurance, consumer goods and so on.

One neat solution that gets you well diversified across many companies and many sectors is to buy shares in a passive, low-cost index-tracking fund that follows the fortunes of an index such as the FTSE 100. The hassle-factor is at its lowest with such an investment, and you’re likely to find the total returns from dividends and capital growth competitive, compared to constructing your own diversified portfolio of shares.

The post Forget buy-to-let! These property shares may be all you need for great returns appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co, Landsec, Primary Health Properties, and Tritax Big Box REIT. 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.

However, the landscape has changed dramatically in recent years due to taxation and regulatory changes, and the outlook for property as a long-term investment is a lot less certain now.

Here’s a look at four reasons why buy-to-let property may not be a great investment at the present time.

Low rental yields 

For starters, rental yields are quite low at present. This is due to the fact that house prices have skyrocketed in recent years and rental income has not kept up. While it’s hard to get an exact figure on current UK rental yields, research from insurance specialist Direct Line recently concluded that the nationwide average yield is around 3.6%. Of course, some areas will offer rental yields that are much higher than that, yet when you consider that you could easily pocket that kind of yield from a portfolio of stocks or funds, you have to ask yourself whether it’s actually worth the hassle of investing in property for that level of yield.

Falling property prices 

Then, you have to think about potential property price weakness as a result of Brexit. There’s no doubt property prices have fallen across many areas of the UK in the last year (London prices have fallen in each of the last five quarters) with buyers unprepared to meet sellers’ asking prices. Yet prices are still very high when you look at price-to-wage multiples. Could prices weaken further? I think it’s certainly possible.

Stamp duty

Next, consider the stamp duty that you’ll need to pay to purchase a buy-to-let property: 

There’s no denying those stamp duty rates are off-putting. For example, a £300,000 BTL property will set you back £14,000 in stamp duty. 

Increased regulation

Lastly, don’t forget all the new buy-to-let regulation that’s making life more difficult for landlords. For example, rental properties with new tenancies or renewed tenancies are now subject to minimum energy ratings, with landlords liable for big fines for renting out properties that don’t meet the new regulations.

Putting this all together, it appears that buy-to-let isn’t the automatic ticket to wealth that it once was. So what’s a good alternative?

Fantastic long-term returns

To my mind, the stock market remains one of the easiest, and hassle-free, ways of generating long-term wealth.

While many people see stocks as risky, over the long-term the figures speak for themselves. For example, had you invested £10,000 in the FTSE 100 index back in August 1987, by August last year it would have grown to £106,000 when dividends were reinvested, representing an annualised gain of 8.2%.

When you consider that with stocks, you don’t have to worry about things like bad tenants, property repairs, or minimum energy ratings and that you can also spread your money over many different investments to lower your risk, stock market investing definitely has appeal. In my view, it’s a great alternative to buy-to-let.

The post 4 reasons I don’t want to touch buy-to-let property appeared first on The Twelfth Magpie.

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