Jump to content
House Price Crash Forum
200p

Shares Magazine Investors Chronicle Lead Article With Btl

Recommended Posts

Go to homepage first http://www.investorschronicle.co.uk/

Link to story http://www.investorschronicle.co.uk/InvestmentGuides/Property/article/20110602/d8a1d63c-8d03-11e0-8595-00144f2af8e8/Where-to-buy-to-let.jsp

The auctioneer, Chris Coleman Smith, wants to start the bidding at £400,000 on the basis that Islington is "practically recession-proof"

In part two, Stephen Wilmot reports on encouraging signs in the buy-to-let market, and discovers a clever but little-known way into the property market for patient investors.

Share this post


Link to post
Share on other sites

Go to homepage first http://www.investorschronicle.co.uk/

Link to story http://www.investorschronicle.co.uk/InvestmentGuides/Property/article/20110602/d8a1d63c-8d03-11e0-8595-00144f2af8e8/Where-to-buy-to-let.jsp

The auctioneer, Chris Coleman Smith, wants to start the bidding at £400,000 on the basis that Islington is "practically recession-proof"

In part two, Stephen Wilmot reports on encouraging signs in the buy-to-let market, and discovers a clever but little-known way into the property market for patient investors.

I read this IC article too. I'm a trustee of our company's pension scheme and it's becoming apparent that as private sector final salary pension schemes get wound down there are more and more people moving into BTL in place of a traditional pension.

Personally I think they're making a mistake, and BTL is unlikely to secure a decent retirement for the average investor, but the depth of their conviction astonishes me. If stock markets take a dip the man in the street panics and rushes for the exit, but those same emotional amateur investors seem prepared to stick with property through years and years of bad results.

Share this post


Link to post
Share on other sites

I read this IC article too. I'm a trustee of our company's pension scheme and it's becoming apparent that as private sector final salary pension schemes get wound down there are more and more people moving into BTL in place of a traditional pension.

Personally I think they're making a mistake, and BTL is unlikely to secure a decent retirement for the average investor, but the depth of their conviction astonishes me. If stock markets take a dip the man in the street panics and rushes for the exit, but those same emotional amateur investors seem prepared to stick with property through years and years of bad results.

Indeed. Take the quote below from the Mail for example, she's taken on liabilities for six mortgages at 70-80% LTV to end up breaking even month to month, and she describes her approach as 'cautious'. It simply beggars belief.

The strangest part is the heath of corporate balance sheets at present- many are loaded with cash. We ought to be seeing much more M&A activity and stock market outperformace. At some point the cash will have to come out.

http://falseeconomy.org.uk/blog/no-money-left-uk-corporations-are-sitting-on-a-600bn-surplus

Other cities also offer opportunities. Lynsey Sweales, 31, a self-employed marketing consultant, owns six buy-to-let properties in her home town of Norwich, bought between 2001 and 2006.

The properties are one or twobedroom flats or houses, either in small blocks or on the edge of newer housing estates. Lynsey, whose first job was in the mortgage industry, is hands-on as she knows Norwich’s property market intimately.

Four of her six properties have been vacated so far this year, three of which she immediately rented out again, in two cases with higher rents.

The fourth property, which had been neglected by the former tenant and needs about £1,000 of refurbishment, became free late last month. Lynsey has already had a number of inquiries.

But Lynsey’s experience, like that of most serious landlords, has not been one of easy riches. Buying two properties at high 2006 prices means she is heavily mortgaged – about 70 to 80 per cent – across her portfolio. One-off costs, such as refurbishments, bite into returns.

‘It is a good market right now,’ she says. ‘If I had available money, I would invest further. But currently my rental income covers my costs, nothing more. And with interest rates likely to rise I am being cautious.’

http://www.dailymail.co.uk/money/article-1394298/Rent-generation-fuels-buy-let-bonanza.html

Like you, I am amazed. It is inexplicable why people are so committed to the cause of BTL.

Edited by cheeznbreed

Share this post


Link to post
Share on other sites

Like you, I am amazed. It is inexplicable why people are so committed to the cause of BTL.

Property only ever goes up, init? I suspect they though the same in Japan 25 years ago, the UK could do with a large dose of the same to shake the parasites out of the market.

Share this post


Link to post
Share on other sites

I think that is what is keeping prices up in the south-east.

Mr and Mrs Patel are typical of the kind of buyer currently driving the UK housing market. Equity-rich and risk-averse, they see property as an alternative to keeping their cash on deposit at the bank....

Share this post


Link to post
Share on other sites

I think that is what is keeping prices up in the south-east.

Hmmmm...... I wonder if that's what the government are relying on.

Enough cash rich individuals piling hundreds of thousands of pounds into the housing market and transferring ownership of the houses from the indebted to those who can afford to take a 50% haircut without becoming reliant on the state.

Share this post


Link to post
Share on other sites

The strangest part is the heath of corporate balance sheets at present- many are loaded with cash. We ought to be seeing much more M&A activity and stock market outperformace. At some point the cash will have to come out.

If you look at the companies in the FTSE, over half their profits come from overseas. Not just exporting as such, but stand alone overseas operations. And that's only going to get bigger, Glaxo for example has the world's largest alzheimers research facility, but it's in Shanghai. This is basically why I'm bullish about UK large cap stocks, but bearish about the UK. So, returning to your point, I agree that huge cash reservoir will be spent at some point, but how much will be spent in Britain?

Share this post


Link to post
Share on other sites

I read this IC article too. I'm a trustee of our company's pension scheme and it's becoming apparent that as private sector final salary pension schemes get wound down there are more and more people moving into BTL in place of a traditional pension.

Personally I think they're making a mistake, and BTL is unlikely to secure a decent retirement for the average investor, but the depth of their conviction astonishes me. If stock markets take a dip the man in the street panics and rushes for the exit, but those same emotional amateur investors seem prepared to stick with property through years and years of bad results.

Really? So what if it falls in real terms. If they are in it for the pension, what do they acheive? Even accepting 30% voids and rent that doesn't quite cover the whole mortgage they still have someone else paying for most of their property over 25 or 30 years. What do they have at the end of it? An income pessimistically equivalent to 2/3rds the rent on whatever sort of property it was -in perpetuity-. Ramp that up by 4 and you have a reasonably generous income, not just for life, but for your spouse and childs life for a cost outlay likely significantly below the pension contributions you would need to make otherwise just to cover your old age care.

Tell me - what are the values like on annuities these days?

Share this post


Link to post
Share on other sites

Really? So what if it falls in real terms. If they are in it for the pension, what do they acheive? Even accepting 30% voids and rent that doesn't quite cover the whole mortgage they still have someone else paying for most of their property over 25 or 30 years. What do they have at the end of it? An income pessimistically equivalent to 2/3rds the rent on whatever sort of property it was -in perpetuity-. Ramp that up by 4 and you have a reasonably generous income, not just for life, but for your spouse and childs life for a cost outlay likely significantly below the pension contributions you would need to make otherwise just to cover your old age care.

Tell me - what are the values like on annuities these days?

Hmm,

Even ignoring the possibilty of capital loss - whihc you cannot - BTL gets the outgoings wrong.

In the areas I monitor - outisde of London, SW + NE.

The rentals have an average void of 2 months a year.

Factor in EAs fees - most BTL mortgage insists (stupidly) on using an agent - another months rent gone.

And maintenance - 1 month a year

Giving an average return of 8 months rent to pay for your mortgage and take profit.

Can't be done.

I went thru rental figures in the mid-90s with a LL who bought houses for cash.

He needed about 10%+ yield on the property to make it pay.

I think most BTLer post 2002 are going to be skinned alive.

Share this post


Link to post
Share on other sites

Hmm,

Even ignoring the possibilty of capital loss - whihc you cannot - BTL gets the outgoings wrong.

In the areas I monitor - outisde of London, SW + NE.

The rentals have an average void of 2 months a year.

Factor in EAs fees - most BTL mortgage insists (stupidly) on using an agent - another months rent gone.

And maintenance - 1 month a year

Giving an average return of 8 months rent to pay for your mortgage and take profit.

Can't be done.

I went thru rental figures in the mid-90s with a LL who bought houses for cash.

He needed about 10%+ yield on the property to make it pay.

I think most BTLer post 2002 are going to be skinned alive.

Your maths is wrong - and buying them for cash is daft.

Flat - price £250k

Deposit 10% = £25k

Income 1200*8 = £9.6k

Mortgage @ 4% = 1200*12 = £14.400

Annual payments deficit £4.8k

Over 25 years total outlay = £145k

Times that by 4 properties, and you've just bought yourself a permanent income of £38k for life and for your offspring - or a total pot of £1m for an outlay of a mere £580k

Of course that's before we start pissing about with inflation. Granted at 8% the numbers aren't so great, but hey, who's counting these days?

Share this post


Link to post
Share on other sites

Hmmmm...... I wonder if that's what the government are relying on.

Enough cash rich individuals piling hundreds of thousands of pounds into the housing market and transferring ownership of the houses from the indebted to those who can afford to take a 50% haircut without becoming reliant on the state.

I think that is exactly it. This suckers are delaying the correction, which annoys me deeply, but they are also saving the banks, the economy and the nation.

Share this post


Link to post
Share on other sites

or a total pot of £1m for an outlay of a mere £580k

that's a terrible return, not even considering capital opportunity and leverage-risk

epic fail

Edited by Si1

Share this post


Link to post
Share on other sites

Your maths is wrong - and buying them for cash is daft.

Flat - price £250k

Deposit 10% = £25k

Income 1200*8 = £9.6k

Mortgage @ 4% = 1200*12 = £14.400

Annual payments deficit £4.8k

Over 25 years total outlay = £145k

Times that by 4 properties, and you've just bought yourself a permanent income of £38k for life and for your offspring - or a total pot of £1m for an outlay of a mere £580k

Of course that's before we start pissing about with inflation. Granted at 8% the numbers aren't so great, but hey, who's counting these days?

yeah right, the average BTL has 20K spare every year.....

Oh and the total outlay for mortgage alone on 4 flats.....£1,425,159.00

you forgot the interest.

Edited by Bloo Loo

Share this post


Link to post
Share on other sites

that's a terrible return, not even considering capital opportunity and leverage-risk

epic fail

I think he was being sarcastic, trying to shed some light on the type of mathematics that the typical "risk-averse" person would go through before buying into BTL.

In a way it is really not surprising, as most share investors I have come across do even less research than that before pressing the BUY button.

Share this post


Link to post
Share on other sites

If you look at the companies in the FTSE, over half their profits come from overseas. Not just exporting as such, but stand alone overseas operations. And that's only going to get bigger, Glaxo for example has the world's largest alzheimers research facility, but it's in Shanghai. This is basically why I'm bullish about UK large cap stocks, but bearish about the UK. So, returning to your point, I agree that huge cash reservoir will be spent at some point, but how much will be spent in Britain?

Well, that's an excellent question. Investors can get twitchy too, it is possible that pension funds and other large investors will start to (quite reasonably in my view) put pressure on companies to pay/increase dividends if the cash is swilling around balance sheets seemingly with no home to go to for too long. I guess that would result in overseas profits being paid out to UK-based people in the main.

Share this post


Link to post
Share on other sites

yeah right, the average BTL has 20K spare every year.....

Oh and the total outlay for mortgage alone on 4 flats.....£1,425,159.00

you forgot the interest.

No, the interest is in there. The point is that although it might cost you 1.4m to buy it - someone else is stumping up the capital. You are just accepting a nominal risk + seed money. If you can't afford to invest 20k a year, its probably not for you, but what do you want - to pay nothing for a free income? May as well sign on.

As for it being a crap return, well, yes, it is pretty pessimistic in terms of rental income. It also chooses to assume inflation at 0% for 25+ years. If we allow a compounding inflation at 5% which I assume you would allow for any other estimate of growth, then the numbers change dramatically in the btl favour. You might not like it, but it is a steady income with pretty well protected capital accrual.

Share this post


Link to post
Share on other sites

If we allow a compounding inflation at 5% which I assume you would allow for any other estimate of growth, then the numbers change dramatically in the btl favour.

no they don't - inflation is irrelevant, and the return is abysmal for an absurd risk, end of

In a way it is really not surprising, as most share investors I have come across do even less research than that before pressing the BUY button.

true aswell

Share this post


Link to post
Share on other sites

no they don't - inflation is irrelevant, and the return is abysmal for an absurd risk, end of

Yet you expect growth from somewhere to get a better return than doubling your money + income for life.

There is a minimal risk involved as long as you are able to keep up payments during voids - after all the capital value of the property is only a side effect - what you are after is the ability to get 4x local rent as income.

As I say, all this can be acheived in a low ir environment. Where else can you acheive this with no factored in price inflation of your asset?

Share this post


Link to post
Share on other sites

No, the interest is in there. The point is that although it might cost you 1.4m to buy it - someone else is stumping up the capital. You are just accepting a nominal risk + seed money. If you can't afford to invest 20k a year, its probably not for you, but what do you want - to pay nothing for a free income? May as well sign on.

As for it being a crap return, well, yes, it is pretty pessimistic in terms of rental income. It also chooses to assume inflation at 0% for 25+ years. If we allow a compounding inflation at 5% which I assume you would allow for any other estimate of growth, then the numbers change dramatically in the btl favour. You might not like it, but it is a steady income with pretty well protected capital accrual.

You HOPE someone else is stumping up.

The outlay is real...the income is a hope.

Share this post


Link to post
Share on other sites

Yet you expect growth from somewhere to get a better return than doubling your money + income for life.

There is a minimal risk involved as long as you are able to keep up payments during voids - after all the capital value of the property is only a side effect - what you are after is the ability to get 4x local rent as income.

As I say, all this can be acheived in a low ir environment. Where else can you acheive this with no factored in price inflation of your asset?

you are clueless, the long term return on the stockmarket murders your proposals, with the added benefit of no-recourse leverage and diversification

you are absolutely clueless and talking in fairy tales

Edited by Si1

Share this post


Link to post
Share on other sites

you are clueless, the long term return on the stockmarket murders your proposals, with the added benefit of no-recourse leverage and diversification

you are absolutely clueless and talking in fairy tales

How? You are reliant on growth. If we do similar predictions on housing - eg double from now over 25 years - then I struggle to see how you can possibly maintain your position.

Share this post


Link to post
Share on other sites

then I struggle to see how you can possibly maintain your position.

It's not my fault you can't do maths really is it

Share this post


Link to post
Share on other sites

It's not my fault you can't do maths really is it

if you spend half a million on shares over 25 years you have absolutely no guarentee that they will be worth that the next day, nor can you guarentee any income.

So where is your advantage?

Share this post


Link to post
Share on other sites

if you spend half a million on shares over 25 years you have absolutely no guarentee that they will be worth that the next day, nor can you guarentee any income.

So where is your advantage?

same with any asset.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.