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Thinking of investing in buy-to-let? I’d get rich and retire early with FTSE 100 shares

The buy-to-let industry has been a hugely popular place for anyone with excess capital to invest in over recent decades. Property prices have soared and, while there have been periods of decline, they have generally failed to last long before being replaced with yet more growth.

Now though, the prospects for the buy-to-let industry appear to be somewhat downbeat. The housing market could experience a period of slower growth, which could make now the right time to pivot towards the FTSE 100.

With the index offering a variety of stocks that trade below their intrinsic values, the FTSE 100 may be a better means of improving your financial future.

Cyclicality

Both the property market and stock market are cyclical in terms of experiencing periods of growth that are followed by periods of decline. The property market has experienced a decade of growth, and now seems to be somewhat overvalued. For example, property prices compared to average incomes are at the upper end of their historic range. Should interest rates rise over the coming years, the affordability of houses could come under severe pressure.

By contrast, FTSE 100 shares appear to offer good value for money. That’s despite the index’s price level having more than doubled since the financial crisis. In fact, a number of large-cap shares currently trade on price-to-earnings (P/E) ratios that are significantly below their historic averages, which could suggest that the stock market remains undervalued even after a period of encouraging performance.

Income appeal

With property prices being somewhat unaffordable in many parts of the UK, it is perhaps unsurprising that their yields have declined in recent years. Although they are still well ahead of cash returns and many investment-grade bonds in terms of their income returns, buy-to-let properties seem to lack appeal for income-focused investors when compared to FTSE 100 shares.

For example, many FTSE 100 companies offer dividend yields in excess of 6% at the present time. Obtaining such a high yield from a buy-to-let after service charges, repairs, management fees and a number of other costs are deducted is likely to prove difficult in many parts of the UK. Therefore, from an income investing perspective, FTSE 100 stocks could produce significantly higher returns than property in the long run.

Simplicity

Although buy-to-let investing can be an exciting adventure, ultimately it requires a significant amount of effort. For example, maintaining a property, communicating with management companies and/or tenants and a variety of other tasks can make it seem as though being a landlord is a second job.

Investing in the FTSE 100 generally requires far less effort. Certainly, research into the companies you hold is needed in order to try and beat the wider market. But, with this being easily accessible online, buying and holding large-cap shares could be a simpler and less time-consuming means of improving your financial outlook when compared to buy-to-let.

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Peter Stephens 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.