Buy-to-let investing used to be a virtually guaranteed way to make money over the long term. Unfortunately, in recent years, this has changed. The government has clamped down on the lucrative tax benefits buy-to-let investors used to receive.
On top of this, due to a number of unscrupulous landlords abusing the system, policymakers have brought in a range of regulations to try and force property owners to better take care of both their properties and tenants.
As a result of these two factors, renting out property has become more costly. It’s still possible to make a profit in the industry, but it now takes a lot more time and effort, as well as more capital to make sure you don’t fall foul of regulations.
Many buy-to-let investors have decided to restructure their assets into corporate structures following these changes. Using a company gets around some of the tax changes, but this comes with additional costs and more stringent regulations about the distribution of profits.
A recent study showed most private landlords are going to make a loss this year as the tax changes bite. A loss is also forecast for 2020 for individual investors on average.
Time to sell up?
All in all, life is now harder for private landlords than it has been for many years. I believe the best way to overcome this problem is to exit the industry entirely.
When I say exit buy-to-let investing entirely, I don’t mean abandon property as an asset class. There’s a range of other ways you can get access to property without having to take on the obligations of managing a rental.
For example, you could buy shares in a real estate investment trust, or other types of property trust. There are also property development companies and homebuilders you could buy for your portfolio.
The added advantage of investing in these public companies is you can jump in and out whenever you want. The shares are traded on a liquid market, and you don’t need to worry about waiting weeks or months to find a buyer. These companies also manage the properties on your behalf and the costs are usually much lower.
Second income stream
At the time of writing, there are a handful of public property companies offering dividend yields in the region of 4% to 6%. Not only is this level of income similar to the level you’d receive from a rental property, but you can also hold the shares inside a tax-efficient wrapper such as an ISA or SIPP.
This means you don’t need to worry about paying additional tax on the income received, something you’d have to do with a rental property.
So overall, it’s no longer straight forward to make money from buy-to-let investing. As a result, I think your money would be better put to use in the stock market. Here it can earn a steady income without having to worry about tax or regulatory changes. What’s more, you don’t have to worry about managing the properties yourself.
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Rupert Hargreaves owns no share 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.