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Forget buy-to-let property! I’d invest in FTSE 100 dividend stocks in 2020

The outlook for buy-to-let property in 2020 could be relatively uncertain. House price rises over recent years, political risks and challenges in obtaining finance could make it increasingly difficult to make a profit from the sector.

By contrast, investing in FTSE 100 shares could prove to be a shrewd move. The index seems to offer good value for money at the present time – even after its decade-long bull market. And with the outlook for the world economy being positive, large-cap shares may experience a tailwind over the coming 12 months.

As such, now could be the right time to focus your capital on shares, rather than property.

Housing challenges

Although in the long run there could be scope for house price growth, current valuations suggest that 2020 could be an uncertain year for landlords. Compared to average incomes, house prices are towards the upper end of their historic range. This suggests that they may be relatively unaffordable, while the yields on offer to buy-to-let investors could prove to be disappointing.

Furthermore, political risks remain in place. Brexit could continue to be a central theme over the next 12 months, which may cause investors and first-time buyers to adopt a cautious stance towards major investments or purchases. And, with it now being more difficult to obtain mortgage finance than in the past, generating a worthwhile risk/reward ratio from property may be highly challenging.

FTSE 100 opportunities

The FTSE 100 may also experience an uncertain 2020 after what has been a tough 2019. Political risks across major economies are expected to be high, while the potential for a global trade war may mean that investors adopt a cautious stance towards riskier assets.

However, economic forecasts suggest that the world economy will shrug-off such concerns over the next 12 months. It is expected to grow at a faster pace than has been achieved in 2019, and this could provide favourable operating conditions for FTSE 100 companies. They may be able to capitalise on rising demand for goods and services across a range of developed and emerging economies, which could translate into increasing top and bottom lines.

Income opportunities

With a wide range of large-cap shares currently trading on relatively low valuations compared to their historic levels, now could be the right time to buy a range of stocks instead of the direct ownership of properties.

Furthermore, with it being possible to build a portfolio of dividend shares that yield over 4% or even 5%, opportunities within the FTSE 100 for income investors seem to be high. Unlike many buy-to-let properties, income stocks offer a tax-efficient passive income when purchased through a Stocks and Shares ISA. This may mean that their net returns are higher than for buy-to-let properties, making their overall risk/reward ratios more attractive in 2020 and in the long run.

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Peter Stephens 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.