A couple of questions...for the serious BTL folk, is your bottom line return vs investment? (given property prices and rental income both vary so much) and are there any sources of advice/wisdom?
Are people really thinking there won't be a huge recession when COVID has to be paid for?
Are people really thinking there won’t be a huge recession when COVID has to be paid for?
We've never paid off the Nation debt, and unlikely to ever do so. The debt is still pretty cheap to finance and will probably be inflated away at some point when inflation next rises.
I used to have a btl. I didn't really compare it to other investments, as it was an old house I rented out - if I had compared it, the return on investment would have been silly due to the leveraging - I had maybe 70k of equity in it to start with, ended up with £150k plus £10k pa profits over 5 years. I think that's close to a 20% ROI
I got out as successive budgets have punished landlords (I don't disagree with this) and I suspect future ones will do too, until it is unviable financially for most folks.
I got out as successive budgets have punished landlords (I don’t disagree with this) and I suspect future ones will do too, until it is unviable financially for most folks.
As above. I ended up a landlord for the second time while moving / merging house but now I am in the game the current situation makes it harder to get out unfortunately.
for the serious BTL folk, is your bottom line return vs investment? (given property prices and rental income both vary so much) and are there any sources of advice/wisdom?
Return on investment has to be the bottom line. Obviously there are ethical considerations on property where you don't want to be squeezing every penny of profit. Also, as you say, there is a lot of variation so while you may get a great percentage return now that may change. That said it usually goes up, rents go up, your costs stay the same, but there is always the risk of a big bill. You do also need to factor in capital growth. Some property will go up a lot so might be a better investment even if it has a lower yield today. I've got a mix of investments for my pension. Some property and some shares. Property has been by far the best financially, and it is making money for me now, and will continue to do so for the foreseeable future.
Cheers folks.
Recession: I get that it "might not" happen, or be too bad, but given the scale of debt Vs the 2008 crash, and the Tories being in power, isn't at least a reasonable dip inevitable?
Recession is never universal. It an average. I remember going to Burford in Oxfordshire with my parents in the early 90s and them saying "This is a town where the recession never happened".
Personally I wouldn't do another btl unless it was cheap and I was also doing a refurb, there by giving myself 6months work as well (all be it with deferred payment via capital gains) but I enjoy this type of work and would do it full time if I had the moeny.
Recession: I get that it “might not” happen, or be too bad, but given the scale of debt Vs the 2008 crash, and the Tories being in power, isn’t at least a reasonable dip inevitable?
It might effect property prices, and that is a big "might" as there are loads people with a vested interest in keeping prices high, and a large number of people willing to buy if prices drop a bit. I doubt it will effect rents much. Maybe in s****y London flats, but not general housing. As a long term investment it'll ride the dips pretty well IMO
To quote a horrid American aphorism, Wall Street is not main street.
I.e. while austerity 2.0 and mass redundancies will see certain parts of society having an even harder time of it, my view is that its unlikely to put any material downward pressure on house prices, and it certainly won't hurt BTL landlords who will have as many prospective tenants as ever. (swish inner city flats excepted...)
My bottom line is a steady income stream in retirement. The current so called squeeze on landlords is more a squeeze on borrowing to become a landlord, and a squeeze on exiting being a landlord. I own houses outright, my kids can sell them when I'm dead. It hasn't been particularly tax efficient way to get to this position since we bought them by remortgaging our family home, but it has insulated us from tax squeeze shenanigans. I suppose I could calculate yields and ROI and all that, but that would really take me into comparing our situation with other investment types, but having been hit by the endowment mortgage thing and the Equitable Life crapshoot, I'm not putting my money in someone elses hands again.
My experience is that I run a few residential properties as part of our commercial property business. I it is a hangover I inherited form my predecessor, but we discovered that it was a pretty good money maker, and we have bought a few more. It's been 22 years this year since I got involved..
Treat it as a black box, the property value itself is less of an issue, as in the long term it will always at least come back to what you bought it for (unless you are crazy and buy something overvalued, this is where the talent/work/knowledge comes in to play.)
Return on investment is based on what you spend, not what the purchase price was, so any loans are a cost not an investment (assuming interest only), you are buying income.
EG 200k house, you invest 50k and borrow 150k at 4%.
The property makes 10k a year gross.
Based on purchase value its 5% return.
Based on what you borrow, include the interest then that's 6k off the gross, so now you have 4k left.
Based on your investment 4k/50k = 8%
Do you see how the 4% interest on the 160k borrowing buys you extra return on your 50k investment?
8% is good money, plus any growth in property value.
Edit - buy as a ltd company to insulate yourself from the tax squeeze.
I read the title wrong. This thread is a lot more boring than I was expecting.
I read the title wrong. This thread is a lot more boring than I was expecting.
BLT?
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It hasn’t been particularly tax efficient way to get to this position since we bought them by remortgaging our family home, but it has insulated us from tax squeeze shenanigans.
even if its not secured against the rental property, you may be able to offset the interest being paid on your residential mortgage if it was taken to provide funds for the btl business. Worth asking an accountant certainly
Most of the ROI for the average BTL is in capital appreciation and the leveraged position. As an example if you have 50k and you buy shares and the market goes up 10% then you have made 5k. If you use the 50k as a deposit for a 200k house and the house value goes up 10% then you have made 20k.
But with a house you have the hassle of renting it and with a mortgage you are also leveraging the risk, you can lose more than 50k. And you have all the costs associated with the purchase and sale of a property (capital gains tax applies to both but something like stamp duty or council tax are dead money).
So ROI is complex with a BTL. And the big risk is that the market that has been outpacing most other things consistently for the last couple of decades is the real driver.
Regulations are getting worse and good landlords were doing it anyway, landlord registration will be next. Sadly it doesn't address the bad landlord market as it will just drive bad let's underground.
I reckon now on a new purchase you d be lucky to get over 3% net after costs but before tax. Maybe the same again on the capital, but again that's taxable.
When I started I think I got 8% yield, but interest rates were maybe 10%.
It's a long term investment, 1 of mine the tenants been there 12 years my cumulative spend must be sub 1k. I can see landlords divesting the poor ones and just retaining the good payers.
Just seen the flat below mine was sold to an investor, here s the numbers.
Paid 325k
Legals and stamp say 10k
Say 5k renovation, elec cert, energy cert, appliances
So 340k outlay
Rent 1150 pm
Service charge 950
Insurance 300
Agent fee 1500
Yield 3.25%
However, it's a 1 bed and 1150 is a bit toppy in today's market. So say 3% yield assuming 12 month let, so not a lot of headroom if you are borrowing 75% at 3.5%.
Not bad as a cash investment but little scope for adding value. Smart moneys been and gone, they were 90k new in 1996, c 200k 10 years ago.
Landlord registration is already happening in Scotland ( only edinburgh?)
Standards are being ratcheted up and HMO regs applying to more properties
When you do your sums figure on 9 or 10 months rental a year ( so you have some room if stuff goes wrong) and a rental a little below market value to avoid periods without occupancy and get to pick and choose tenants
Edinburgh rental market while utterly ridiculous in prices is a bit shakey right now with overseas workers going home and holiday lets returning to the long term let market.
Cheers all. Does sound like it's not the dream it once was (my figures would be close to poolman's, I'll do the other ROI analysis on it tho).
my figures would be close to poolman’s
Tbh I would probably still do it at those figures if there really was nothing else as you'll still get capital growth but in reality I'd keep looking for something better. There's always another property and another deal.
Cheers @nickjb thing is I already own the property that I might let (not outright) and am thinking of downsizing, so the alternative is to sell (and avoid 4% 2nd home purchase tax in Scotland) but then have to buy other BTLs...or just invest in other ways.