I plan to build long-term wealth by buying FTSE 100 and FTSE 250 stocks. But recent research showing rising activity amongst buy-to-let investors has led me to swoop in for closer examination.
Estate agent Hamptons says that “returns for equity rich landlords have been rising” because of rising rents and cooling property prices. So is now the time for me to swoop into the residential rentals market?
Costs driving rents higher
News of rocketing rents in 2022 has led to the recent rebound in buy-to-let investing. Property management company Ocasa says that average rents have shot up 10.8% since last Christmas. The average tenant cost now sits at £1,175, its data shows.
But this isn’t creating a wealth of riches for buy-to-let investors. In fact, some landlords are struggling to make ends meet right now, according to Ocasa.
Jack Godby, sales and marketing director at the firm, notes that “rent prices are increasing because landlords are passing on the additional costs they’re dealing with due to the cost of living crisis, not least the soaring price of energy.”
He adds that “rising mortgage rates means many landlords are being forced to up their prices to avoid making a loss on their investments.”
Slumping profits
The number of buy-to-let investors has dwindled in the UK since Stamp Duty changes five years ago. Back then, the taxman rolled out an extra 3% levy on buyers of second residential properties.
Other changes have crippled profitability for private investors too. The removal of mortgage interest tax relief has been a game changer for many. So has the introduction of new compliance rules for residential rentals that has increased costs and the day-to-day running of buy-to-let.
This has made stock investing a much better way to create wealth, in my view. And further raids on buy-to-let profits could be coming as the government tries to improve the housing stock for first-time buyers.
Buying FTSE 100 shares
There’s no guarantee I’ll make money with UK shares. Stock markets famously go up and down. I might even lose all my invested capital if a company I own stock in goes bust.
Having said that, there are strategies I use to reduce the risk to my hard-earned money. I take time to do as much research as I can on a company and the industry it operates in. I also invest in a healthy number of different stocks to help reduce the risk. My Stocks and Shares ISA currently holds more than 20 different shares.
I also like to invest in financially robust FTSE 100 companies with strong track records of profits generation. Unilever, Diageo and Coca-Cola HBC are just a few FTSE index shares I currently own.
Over the long term, UK share investors tend to enjoy an average annual return of 8-10% per year. These are the sort of wealth-creating returns that mean I don’t have to take a risk with the increasingly difficult buy-to-let market. So I plan to keep loading my investment portfolio with top FTSE 100 stocks.
