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Why I believe the Shell share price will always beat buy-to-let

Many people believe property investing is safer than equity investing. As a result, most investors would rather own rental property than stocks. However, I’m a great believer in the power of equity investing.

Today, I’m going to explain why I believe the Royal Dutch Shell (LSE: RDSB) share price is highly likely to outperform buy-to-let property as an asset class over the long term.

Risks growing 

The return you can achieve from buy-to-let investing varies greatly depending on the region of the country where you decide to deploy your capital. On average, over the past few decades, buy-to-let investments have seen a high single to low double-digit annual return on their money. By comparison, over the past decade, the Shell share price has returned 9.5% per annum for investors, including income and capital gains.

So, investors have achieved a reasonably similar return from both asset classes over the past decade, before deducting expenses and taxes. Going forward, I think it’s unlikely buy-to-let property will continue to generate the same kind of returns as it has done over the past decade. There are several reasons why I believe this will be the case.

First of all, the government has cracked down on the lucrative tax benefits buy-to-let investors have enjoyed for a long time. As a result, many landlords have seen their profits evaporate. Second, after years of rising prices due to limited supply and falling interest rates, home prices are starting to come off the boil. Banks are tightening lending criteria, and home building has recovered close to pre-crisis levels. Thirdly, landlords now have to deal with a whole range of new regulations designed to ensure they don’t cut corners with maintenance.

Market leader 

While Shell does operate in a highly regulated and controlled industry, the company’s size and experience means it’s well-versed in dealing with any issues that arise. And, more importantly, investors don’t have to worry about dealing with these issues themselves.

As one of the largest producers of oil and gas in the world, and the largest trader of hydrocarbons in Europe, Shell dominates the markets it operates in and generates vast profits as a result. This is unlikely to change anytime soon, which makes the company a tremendous defensive investment in my view.

I reckon Shell will maintain its market position for many years to come, generating healthy profits for investors. Meanwhile, buy-to-let investors face ever-increasing regulation and the prospect of deteriorating returns. 

Another factor to consider is that Shell is an internationally diverse energy business. Its future isn’t dependent on any one key market. On the other hand, if you invest in buy-to-let property, you’re hoping the UK economy continues to grow.

Income champion

You can still get buy-to-let properties with rental yields in the high single digits, but this excludes the cost of managing the properties. I’d much rather pick up a dividend cheque from Shell. At current prices, the stock supports a dividend yield of around 5.7% — an impressive level of income for almost no work on your part. That’s why I believe the Shell share price will always beat buy-to-let. 

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Rupert Hargreaves owns shares in Royal Dutch Shell plc class B. 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.