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Why I’d ditch buy-to-let property and invest like Warren Buffett to get rich

I reckon buying and letting property is a difficult way to get returns from an investment. Apart from all the expense and hassle involved in buying and running a bricks-and-mortar investment, some experts involved in the property market are predicting modest rental returns ahead, as Rupert Hargreaves recently pointed out.

The headline of this article says I’d ditch buy-to-let property, and it’s true I’d certainly ditch the idea of taking on a property to rent out for the first time now. To me, property prices have run too far ahead of affordability – the gap between the average wage and the asking price of a starter home is too high.

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Headwinds in the sector

On top of that, the buy-to-let sector has been facing an onslaught of regulatory changes designed to make the option less attractive. And it’s working. I reckon that going forward it will be harder to make a profit from a buy-to-let business than it has been in the past. But whether I’d ditch rentable property that I already owned is another question. Everyone must make their own judgement about that kind of situation. 

Instead of buy-to-let, I’d aim to invest like Warren Buffett to get rich. Shares on the stock market have outperformed all other major asset classes over the long haul, and I think they will continue to do so. One great thing about owning shares and share-backed investments such as funds is that they are usually easy to get in and out of, unlike physical property.

Warren Buffett is perhaps the most successful investor of all time, so I think it’s worth studying his approach to investing in stocks and shares. He famously thinks of shares from a business perspective. When he buys shares he has part ownership of the underlying business. And just like we may hold on to buy-to-let property for a long time, he tends to hold on to his shares for a long time.

Buffett’s approach

But Buffet doesn’t buy shares in any old company. Key to his strategy is looking for shares with a high-quality underlying business. In other words, he’s looking for companies operating in a strong market niche, which will lead to a good record of trading and a robust and consistent financial record.

The final part of the Buffett approach to investing in shares involves looking for good value. The idea is that if we over-pay for shares they could under-perform as an investment even if the underlying business is good quality. He’s known for being greedy when others are fearful. So, when the stock market is weak and everyone is worried, he tends to snap up the shares of the quality enterprises he’s been watching.

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Kevin Godbold has no position in any share 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.