Over the past few years, the government has introduced a range of policies aimed at buy-to-let investors in an attempt to improve the quality of rental property and increase the tax take from the sector.
These new rules and regulations have made the asset class significantly less appealing from an investment perspective. Unfortunately, it doesn’t look as if investors are going to catch a break any time soon.
New rules
The Tories have promised to make life easier for renters with two key policies. A reform of the deposit protection system to passport tenants’ cash between tenancies, and the abolition of unfair Section 21 or ‘no-fault’ evictions.
Only time will tell if Boris Johnson and his team will push forward with these changes to the market. However, it’s clear that the buy-to-let sector is still firmly in the crosshairs of politicians.
With this being the case, I think the FTSE 250 is a better way to get rich in 2020.
The better buy
There are a handful of reasons why I would rather own this stock index than rental property as an investment.
For a start, there’s the index’s diversification. This is an index made up of 250 of the largest companies in the UK. These companies do everything from managing property to food service and retail. In comparison, owning just one buy-to-let property gives you no diversification whatsoever.
Secondly, you can own the FTSE 250 via a Stocks and Shares ISA, so there is no need to worry about any additional tax on dividends or capital gains.
Third, you can track the FTSE 250 using a simple, low-cost passive tracker fund. To invest in one of these instruments, all you need to do is open up a brokerage account and click ‘buy.’ There is no need to worry about managing a property, putting money aside for maintenance, managing tenants, or rental agents. All you need to do is sit back and relax.
Lastly, the FTSE 250 has produced fantastic returns over the past decade. According to my calculations, the index has produced a compound annual return for investors in the region of 11% over the past 20 years. This rate of return is enough to double your investment every 6.5 years.
It is on highly unlikely that rental property will ever be able to generate the same kind of return, especially with the government clamping down on lucrative tax breaks and bad actors in the sector.
Put simply, all of the above leads me to conclude that the FTSE 250 is going to be a much better investment than buy-to-let property in 2020. In fact, I think the index is going to be a much better investment than buy-to-let for the next 20 or 30 years purely due to the international diversification and growth potential offered by this mix of 250 of the UK’s largest businesses.
