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Thinking about investing in buy-to-let? You need to read this first

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Regular readers will know that we’re not big fans of buy-to-let at The Motley Fool. Government’s crushed the appeal of this once-great investment class through a blend of higher tax bills, bulging operating costs, a decimation of landlord rights and a maze of regulations.

Things could always get worse, of course. And they promise to do just that if Labour were to grab power following an upcoming election. Indeed, recent plans announced in recent days will leave plenty of landlords reaching for the strong liquor.

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Fear the worst

Shadow chancellor John McDonnell has been in the media of late announcing plans to allow those renting from private landlords to buy their homesteads in a plan dubbed ‘Right to Buy.’ The move could prove an electoral masterstroke for Labour leader Jeremy Corbyn and a boon for the army of ‘generation renters’ who are struggling to get onto the housing market. But the plans would likely prove a disaster for a sea of buy-to-let operators.

McDonnell took to the airwaves again at the weekend to tell the BBC’s Andrew Marr programme that any property sales under the scheme would be subject to “a fair price assessment.” But he again failed to say this will necessary lead to property owners receiving a sum equitable to current market value.

Naturally this has led to plenty of chatter from economists as to what exactly they can expect to get for their bricks-and-mortar assets. And judging from the comments of some, like independent economist Julian Jessop, who expects asking prices to be “well below” what the market indicates, it appears as if landlords could be in for an extremely tough time.

Better property plays?

The political landscape here in the UK is changing by the hour and so are the public’s political allegiances. But it’s clear that the civil war in the Tory Party is playing into the hands of the opposition, and latest polling data shows Labour either just behind or in front of the Conservatives, suggesting a Corbyn-led government could be just around the corner.

With the risks for buy-to-let investors rising, there’s an abundance of better ways to grab a slice of the UK property market, to my mind. Take Big Yellow Group, for example, the biggest-yielding of the London stock market’s self-storage operators, with a chunky forward figure of 3.3%. Occupier demand continues to outpace supply, even in spite of the impact of Brexit on broader consumer spending, and the likes of Big Yellow are rapidly expanding to cotton onto this trend.

Or how about Civitas Social Housing? This is a firm where profits are booming because of soaring demand for low-cost homes, and one which offers much more security than buy-to-let because of the long partnership agreements which it has with housing associations and local authorities. An added bonus: particular stock offers up a delicious dividend yield of 6.4% for 2019.

In truth, there’s a galaxy of stocks I’d rather use my hard-earned cash to buy today. I’d implore anyone considering investing in buy-to-let to think carefully before taking the plunge and to look for better ways to play the property market.

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Royston Wild 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.

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