Much has been made of the storm of rising operating costs, increased admin fees, and crushing tax bills which landlords now face, items which have taken a hammer to buy-to-let returns of late. But data from online letting agent Howsy suggests there’s still an opportunity to make some great profits from the property rental market. It just depends on where you choose to set up house.
Indeed, buy-to-let operators in Glasgow, for instance, can enjoy an average rental yield of 7.5%, according to Howsy. This makes it the best-paying location in the UK, according to the research. In fact, Scotland dominates the list, with Midlothian and East Ayrshire sharing joint second place, and an eye-opening eight of the top 10 places located north of the border.
Top 10 Best-Paying Rental Locations (By Average Yield)
Too much cost and trouble?!
Regular readers will know we here at The Motley Fool dislike the idea of buy-to-let, however. Those research numbers may leave many of you questioning our judgement, and particularly as the average forward dividend yield on offer from British blue-chip stocks currently sits at around 4.5%, some way below those rental yields which Glaswegian landlords can expect to generate.
But don’t be fooled by those headline numbers, I say. There’s a galaxy of good reasons why investing in the stock market remains, to my mind, a better way of using your surplus cash than becoming a buy-to-let landlord.
Rental yields might remain hot north of the border, but yields for those investing in the South-East and London are far less impressive, regions which are also bearing the brunt of by stagnating (and even falling) property prices as Brexit uncertainty persists.
Besides, even the biggest yields on that list are likely to generate a much-lower real return once you pay those huge day-to-day running costs I mentioned above and account for the huge slice taken by the taxman. And, as my Foolish colleague Rupert Hargreaves recently pointed out, the amount of money landlords can expect to pay to HM Revenues and Customs is getting larger and larger.
Favour the Footsie
Add in the additional work which buy-to-let entails — from dealing with agents to tenant and manage your property, to taking charge of the everyday operation and regulatory hoops yourself — I would argue the profits you can expect to realistically generate are pretty meagre.
By comparison, stock investing can provide you with some much better returns (of up to 10% a year for long-term investors, research shows) and generally promise much lighter legwork, particularly so if you choose no-maintenance vehicles like tracker funds.
Forward yields for the FTSE 100 might not be as big as the average rental yield in some of those buy-to-let hotspots, but add in the impact of long-term share price gains and stock investing remains a much better way to use your surplus cash, I believe.
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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.