Thursday, Jun 07, 2007
BTLers should seek medical help
Times: The Future of Buy-to-Let
"Determined to find a means to bolster her pension savings, she found an apartment in Florida within her price range. Even as the shine comes off the US market, Leteney sees the long-term value of hanging in." ... she is really "in" for the long haul! Who said "a long term investment is a short-term one gone south"?
Posted by confused76 @ 10:15 PM (336 views) Add Comment
12 Comments
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1. harold said...
medical help? It's a mental health issue.
2. Fwb said...
Put down a 100 K deposit on a 250 K house, and hopefully the tenants rent will pay the mortgage. I understand the concept of leverage, but isn't there something wrong with that statement?
3. Mjchum said...
Larry, a friend of mine from Florida, said to me just the other day "damn house prices shot up in Florida, no one can afford them, ya know why?, the damn British went over there buying the places for holiday homes".
It's amazing, the British have managed to screw up global economic balance with their unrestrained credit binge. Even in the US.
Anyone see the CIA World factbook on global external debt? A real shocker.
4. royston said...
Talk about flogging a dead horse!
5. talking rot said...
This is a typical example of bias in the press. Take the following "Take Shiona Goodman, below, who with her husband Geoff invested £100,000 of savings in a small home to help their children." This is an appeal to the better sense of readers that these BTL-ers are just trying to help their children rather then making money for greed and avarice. Oh, it's only doing what good parents do - trying to help their off-spring. No mention of Mrs Flange in it for greed and wealth.
The best thing these good parents could do was to write to their MPs demanding action on high house prices.
6. European-bear said...
The most interesting thing about this is that the BLTs either put in a considerable amount of cash (eg £100,000) or brought some years ago (2001), and it seems they are still only just breaking even in terms of the rents covering costs. A further indication that in terms of p/e ration, present prices are vastly over inflated. But then we knew that. There are so many better ways to invest money now. 1. Bank account, little risk, gross return maybe 5%. 2. Bonds, government bonds safe but lower yield then higher yielding corporate bonds. 3. Stock market - some on this site argue that world stock markets are heading for a crash. Probably true of China, but the rest of the world has valuations reflecting long term p/e so from that point of view is much safer than housing.
But house prices never go down do they! But when they do, people who put in £100,000 to buy a place for the kids will rapidly see that money evpourating, whilst at the same time struggling to make the rents recieved cover costs....
7. Confused76 said...
EuBear,
What you say is very sensible. I agree entirely that at least some investment should be in shares.
At a dinner, I confronted some of my home-owner friends (no BTLs! since i have no friends who are BTLs) with the concept of diversification and they told me that they preferred to buy the largest house they could afford, with a mortgage that is sucking over 50% of joint income, because they saw it as the fastest way to make money... they said "with shares what do you make? 10%-12% per year... with housing, thank to the leverage, you double your capital every year"... and then they went on explaining to me what "leverage" is about, like kids that have just discovered a new toy. "Unbelievable, banks lend you money so you can make much more money so fast. And it is not risky, because houses are safe assets, otherwise why banks would lend you money against?"
"Ah, that's right?! I will call my bank tomorrow" I said, and I refused to establish any logical counterarguments and had a couple of drinks instead.
8. confused76 said...
EuBear,
What you say is very sensible. I agree entirely that at least some investment should be in shares.
At a dinner, I confronted some of my home-owner friends (no BTLs! since i have no friends who are BTLs) with the concept of diversification and they told me that they preferred to buy the largest house they could afford, with a mortgage that is sucking over 50% of joint income, because they saw it as the fastest way to make money... they said "with shares what do you make? 10%-12% per year... with housing, thank to the leverage, you double your capital every year"... and then they went on explaining to me what "leverage" is about, like kids that have just discovered a new toy. "Unbelievable, banks lend you money so you can make much more money so fast. And it is not risky, because houses are safe assets, otherwise why banks would lend you money against?"
"Ah, that's right?! I will call my bank tomorrow" I said, and I refused to establish any logical counterarguments and had a couple of drinks instead.
9. confused76 said...
From the article in the Times, I missed the paragraph below but it is really hilarious. Should we send Andrea flowers? Poor girl...
She is stuck with her flat (see bank penalties) and "believes" in the prospect of a meager 12% return IN THREE YEARS.... that is 4% capital gain per year ?!??? On top of that I wonder if the rent she will receive will cover mortgage and cost (probably not). But she is probably jubilant since her equity capital has probably doubled.
I congratulate the Times for showing some truth about BTL returns (... well I think they wanted to show a rosy picture but they are so financially incompetent that they didn t realized what a messy example Andrea is).
My financial advise to Andrea: sell NOW!! you feel you have lost £3-4,000 in penalty but you still exit with a gain.
"THE NEW LANDLORD
ANDREA JAKES, right, is a novice landlord. The 28-year-old accountant from Hertfordshire is about to take the step of buying a home with her boyfriend. But instead of selling her own two-bedroom flat, she has decided to enter the buy-to-let market. “I didn’t have much choice,” she confesses. “The penalties to get out of my mortgage were so high (£3,000-£4,000), it seemed the obvious thing to do.”
Andrea bought the flat three years ago for £120,000 and believes it is worth about £135,000 on today’s market."
10. fahrenheit451 said...
Now I'm confused76.
So BTL is still alive and healthy, but profits are down and if you sell, having mewed to buy more porperties the taxman nobbles you for Capital Gains Tax which you can't give him because you've spent equity growth on another property. Oh but it must be good because of the "leaverage" you get on a loan, like you only need 25% deposit which gives you 4x growth on a 100% deposit, yeah, but doesn't this also mean you get 4x depreciation if it goes bad, it's just a muliplier. OK, but its for the children and it's not high-risk, promise, no a 4x multipler's not higher riskier.
Please you can't butter your toast on BOTH sides and then expect it not to land butter side down when it slips off the plate, or does it land on the crust and refuse to fall over. I think I'll invest in a space staion it's much safer and the toast just floats about like a lost sheep crying "apple sauce" trying to divert attention away to the roast pork on the table next-door.
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12. the bald man said...
Fahrenheit...When times are good leverage maximises profits. When times are bad excess leverage = bankruptcy. There is no such thing as a free lunch. People have forgotten the misery of debt. All they can see is low rates and losses that can be rolled into further borrowing.