It can tempting to invest in buy-to-let properties. They could provide a secure income stream. Also, in a time of low interest rates, borrowing is inexpensive. But on the flipside, buying and maintaining properties is no easy task. There’s the actual selection and post-purchase upkeep of the property. Besides this, there’s administrative work involved and taxes to be paid.
Considering this, I’d look at the alternative of high-growth FTSE 100 stocks as well. And if I am really bullish on the property market, I’d specifically consider shares in the sector. What would otherwise be my down-payment, can become my investible capital instead. The average price of a house in the UK, according to HM Land Registry, was £235,298 in November last year. In order to fund such a purchase with borrowings, I’d have to make a down-payment of at least 5%. This amounts to £11,764, assuming I’m buying a house at the average price.
Investing opportunities abound
If I put it in the stock market, let me assume the investible capital to be £10,000 for simplification. With this amount of capital, investing in growth stocks is likely to be quite rewarding. Consider the example of the FTSE 100 retailer JD Sports Fashion, which gave investors over 80% returns in one year alone, making it the best performing share in the set last year. The challenge in investing in equities is, of course, that it’s impossible to predict which stocks will be the fastest growing. To which I’d point out that there were plenty of other shares that offered fairly healthy capital appreciation in 2019.
Focusing specifically on the property sector, I’d like to draw your attention to FTSE 100 real estate portal Rightmove (LSE: RMV). The most immediate reason I like the stock is that it’s run-up in the post-election period has been relatively muted. It spiked less than share prices of bricks and mortar real estate developers, which gives me confidence that its price is not as event-driven as it is by fundamentals. Moreover, RMV’s share price has been on the upswing for a long time. In fact, for risk-averse investors, this is a good stock to consider, because it’s seen a relatively steady increase over time. If I’d invested £10,000 in it in January 2015, my capital would have increased to £46,200 by now.
More options to choose from
Its financials look fine to me, which also gives me confidence in its future. Also, it appears that 2020 will be better for the real estate sector than 2019 was, going by the latest housing price updates. I’d hold my capital in the stock for these reasons. But if I really wanted to, I could still withdraw a deposit for a buy-to-let property and be left with a tidy sum of over £34k. If the share price continues to grow at the rate it has seen over the past five years, by 2025, my remaining capital would stand at almost £160k. And I’d have a buy-to-let property. It sounds like a good deal to me.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.