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Forget buy-to-let! 3 reasons why stocks are better than residential rentals

Forget about Brexit, fears over Sino-American trade wars, an escalating Middle East military crisis and signs of slowing global growth. There are plenty of reasons to get really busy on stock markets right now. To give you just a flavour of what’s happening in the markets right now:

  • Gold prices have surged to six-year peaks, and buying into some of London’s big gold miners (like Fresnillo, Polymetal and Petropavlovsk) are great ways to get exposure to this. Why? Shareholders can benefit from rising metal values while also receiving dividends, something which those holding physical gold do not.
  • There are some truly exceptional bargains to be had right now, even after the stellar stock market gains of 2019. Cynics might argue that this is reflective of the uncertain macroeconomic environment, though I would suggest that classic defensive stocks GlaxoSmithKlineBAE Systems and National Grid — all of which trade on attractive forward P/E ratios of 15 times and below — aren’t really that susceptible to the worsening picture.
  • Global dividends continue to head through the roof. Sure, earnings across the world’s share markets are expected to cool in 2019, though this isn’t tipped to stop dividends hitting new record highs this year. And for UK investors this means that the forward yield for the FTSE 100 sits at an average of  4.5%, running at more than double the rate of inflation at the present time.

The buy-to-let minefield

I certainly believe that investing in stocks remains a better way to use your surplus cash than using it to participate in buy-to-let. The residential rentals arena is becoming an increasingly-befuddling maze of legislative and regulatory reforms and a survey just conducted by Market Financial Solutions perfectly illustrates this. It showed that:

  • An astonishing 30% of landlords don’t understand changes to House of Multiple Occupation (HMO) rules introduced last October. Under new laws, properties which are let to five or more people must be licensed by their local authority, reforms designed to stamp out overcrowding.
  • 28% are unaware that Section 21 notices were scrapped just this month. This means that renters in England and Wales can no longer be evicted at short notice and without a reason after their tenancy period ends.
  • 27% say that they don’t understand the Tenant Fees Act which was also introduced this month. This legislation applies to both new tenancies and renewals and transfers a number of costs like referencing fees from tenant to proprietor, while also capping holding deposits and other items like repair bills.
  • 19% of those questioned also said that while they understand the Tenant Fees Act, they did not know how the new reform would affect them directly.

Taxing times

Reforms affecting the way landlords go about their business aren’t the only rule changes confusing individuals today either. An amazing 28% of respondents to Market Financial Solutions’ study are unaware of inheritance tax changes affecting the tax-free allowance passed down on property, while 25% don’t know about the phased reduction in tax relief on mortgage repayments introduced during April.

Failure to understand any of the issues above can cause landlords plenty of aggravation as well as some nasty unexpected bills too. And the situation threatens to get still worse as government policy designed to free up property for first-time buyers intensifies. So forget about this type of property investment, I say, and put your money to work by stock investing instead.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Fresnillo. 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.