While investing in property through a buy-to-let has been seen as a worthwhile move for many investors in the past, changes to taxation and regulations could mean buying FTSE 100 property stocks is now a better idea.
When purchased through a Stocks and Shares ISA, for example, there’s no tax to pay on income or capital growth. And with a number of FTSE 100 property stocks currently providing wide margins of safety, they may offer better value for money than buy-to-let investments.
With that in mind, here are two large-cap stocks that could increase your chances of making a million compared to undertaking a buy-to-let.
Housebuilder Berkeley (LSE: BKG) released results for the 2019 financial year on Wednesday. They showed its pre-tax profit was at the top end of guidance, hitting £775.2m. This reflected resilient trading during the year, and allowed the company to increase its net cash position to £975m.
During the 12 months, Berkeley added 14 new sites to its land bank. Its Net Promoter Score of 73.5 is also on a par with a variety of highly-respected consumer brands.
Looking ahead however, the company expects its pre-tax profit for the 2020 financial year to fall by a third. This, though, is in line with previous guidance, and reflects a somewhat challenging operating environment.
But with the company’s shares trading on a price-to-earnings (P/E) ratio of around 11, it seems to offer a sufficiently wide margin of safety to merit investment. With a generous shareholder returns plan, it could offer an impressive mix of income and capital growth.
Offering even better value for money than Berkeley is fellow housebuilder Persimmon (LSE: PSN). It currently trades on a P/E ratio of just 7. This suggests investors are anticipating a sharp decline in its financial performance, which could present a buying opportunity for long-term investors.
Although there are possible risks facing the UK property market, such as a weaker economic performance due to Brexit and an end of the Help to Buy scheme, Persimmon’s financial prospects appear to be encouraging.
In the current year, for example, it’s forecast to deliver a rise in net profit of 3%. And with recent updates from the company suggesting demand for new homes remains high, it could enjoy robust operating conditions over the coming years.
With the company having a generous shareholder return plan, it’s expected to yield around 12% in the current year. Since it has a net cash position, as well as an improving financial outlook, its dividend payments may be more affordable and sustainable over the long run than many investors realise.
As such, it could be a worthwhile purchase for value and income investors, appearing to offer a significantly greater chance of making a million than undertaking a buy-to-let investment.
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Peter Stephens owns shares of Berkeley Group Holdings and Persimmon. 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.