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Forget buy-to-let! I’d buy cheap FTSE 100 dividend stocks in an ISA instead

So the FTSE 100 rally of late March has failed to transfer into April. Potential investors find themselves in a bit of a quandary. Market confidence remains exceptionally brittle as the coronavirus crisis (and the economic impact thereof) casts a pall over global share indices. Fresh sell-offs could be just around the corner. 

Could conflicted Footsie investors be better served by investing their cash in buy-to-let instead? They say bricks and mortar is one of the safest ways to protect your wealth in uncertain times like these. So getting involved in the residential property rentals market is a good idea, surely?

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Careful now

I wouldn’t be so sure. As a report just released from Howsy shows, landlords are also suffering from lost trade because of the Covid-19 outbreak.

According to the online property management platform, tenant demand in the UK has fallen an average of 5% in the 20 cities it tracks. Bucking the trend is Belfast, where demand has actually risen 16% because of chronic homes shortages. And in Newcastle and Portsmouth, demand has remained flat on a year-on-year basis.

Top 20 Cities

April 2019 April 2020 Change
Belfast 21% 37% +16%
Portsmouth 32% 32% 0%
Newcastle 14% 14% 0%
Newport 39% 37% -2%
London 21% 18% -3%
Aberdeen 8% 4% -4%
Nottingham 36% 32% -4%
Bournemouth 30% 26% -4%
Liverpool 18% 14% -4%
Bristol 50% 46% -4%
Leeds 16% 11% -4%
Southampton 24% 19% -5%
Leicester 25% 19% -6%
Cardiff 21% 15% -7%
Cambridge 34% 26% -7%
Swansea 16% 9% -7%
Glasgow 25% 17% -8%
Edinburgh 14% 6% -8%
Birmingham 23% 15% -8%
Manchester 26% 18% -9%
Sheffield 22% 13% -9%
Plymouth 34% 23% -11%
Oxford 29% 18% -11%

Screen of price moves in the FTSE 100

Costs are climbing too

It’s not just falling tenant demand that buy-to-let investors need to stomach today. Costs have spiralled in recent years through a mix of changes to tax relief, rising regulatory demands, and increasing maintenance bills. The introduction of the Tenant Fees Act last year has also transferred some weighty extra costs onto the shoulders of the landlord from the tenant. These are problems FTSE 100 investors don’t have to endure.

The outbreak of the pandemic, allied with expectations of a prolonged and painful economic downturn, has led many to predict a steady decline in property prices too. Property investment platform Sourced Capital suggests it could take until the mid-2020s for home values to recover.

Go FTSE 100 shopping instead

Why take the chance with buy-to-let then, a segment long-packed with increasing costs and now doubts over asset prices and tenant demand? You’d be much better off using your money to buy up some choice FTSE 100 stocks in a tax-efficient ISA.

There’s no shortage of brilliant blue-chips trading much too cheaply today. Take National Grid and SSE, for example. The essential service these utility plays provide means they’ve terrific earnings visibility, irrespective of whether a recession is coming down the tracks. Despite their defensive qualities though, they change hands at dirt-cheap prices. They both trade in and around just 14 times earnings. What’s more, the Footsie giants carry mammoth dividends yields of between 5.5% and 6.5% for 2020.

Admiral Group is another great income stock for nervous investors. Insurance is another resilient sector when the economy goes sideways. And this motor insurance specialist also sports dividend yields north of 5%.

It’s of course possible that UK share markets will shake lower again. But, for long-term FTSE 100 investors, there’s a galaxy of opportunities to grab some brilliant dividend shares at rock-bottom prices.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group. 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.