Warning of the perils of buy-to-let investment is something that we here at The Motley Fool devote a large chunk of our time to doing.
But could we be overreacting? A glance at latest data from HomeLet would certainly leave many scratching their heads and asking what all the fuss is about.
In its latest monthly Rental Index report, HomeLet advised that the average UK rent surged to record highs in August, to £970 per month. This is up 2.4%, or £23, from the same month in 2018. The landlord services specialist declared that rents rose in each and every part of Britain, from 0.2% (to £633 per month) in Northern Ireland to 3.5% in Greater London (to £1,689 per month).
And it claims that these increases were built on a myriad of factors, from proprietors passing on increased taxes and larger operating and administration costs (such as those introduced through the recently-passed Tenant Fees Act) to the shortage of rental properties on the market.
However the report wasn’t all good news for landlords, and certainly not those in Scotland, Wales, Northern Ireland and the South West of England: it also showed that average rents in these regions dropped month-on-month in August (from 0.2% in Wales to 1.2% in Scotland).
So what should hopeful and existing landlords make from this report? Well rents are largely on the rise in Britain, clearly, but this alone is not cause for celebration. As HomeLet notes, these rent hikes have been designed to offset higher costs and so are giving landlords’ pockets little (if any) boost at all.
And there’s plenty of data out there revealing how government’s attempts to shrink the buy-to-let sector and to subsequently release homes for first-time buyers are hammering landlord returns. One recent study showed that the average profit after costs now stands at a paltry £2,000.
With buy-to-let becoming increasingly expensive and complicated the question is simple: why bother yourself here when there are so many better ways to make decent returns on your cash? Stock market investment, for example, provides long-term returns with an annual return of between 8% and 10%. And the outlook here for investors is much more secure than that of buy-to-let.
In fact, for those looking to tap into the property market there’s a galaxy of shares that look too good to pass up on right now. Take Primary Health Properties and Assura, for instance, firms involved in the defensive healthcare sector and which own and operate primary care facilities across the UK. These particular shares offer big dividend yields of 4.2% and 4% respectively. Tritax Big Box and Warehouse REIT, providers of warehouses and distribution hubs and thus big plays on the e-commerce theme, provide yields of 4.7% and 6%.
Or how about the housebuilders, almost all of which also offer a top combination of big dividend yields and low earnings multiples? I myself bought Barratt and Taylor Wimpey because of their forward P/E ratios of below 10 times and their corresponding yields of 7% to 11% and reckon they, like the firms mentioned above, have the tools to make some significant profits for their shareholders many years ahead.
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Royston Wild owns shares of Barratt Developments and Taylor Wimpey. The Motley Fool UK has recommended Primary Health Properties and Tritax Big Box REIT. 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.