Einstein71 Posted September 25, 2011 Share Posted September 25, 2011 I dont know why people get so uptight about this kind of post on here, I think it must really hit an extremely raw nerve. I discovered that the house I rent was purchased for £47,500 in 1996. I have been paying £1,350pcm in rent for 3 years, very minimal repairs required so I have more or less bought the house for the LL. In 2020 who knows that average rent may be £2000pcm. We may have higher interest rates....but only in my opinion if the economy is on solid footing in which case you may be looking at HPI again, may be not. Eventually if you have the income to ride out the rough patches being a Landlord makes complete business sense, absolutely cast iron sense. The key is obviously buying a house or apartment that is desirable but if you have that then as long as you aren't entirely reliant on capital gains you should be able to cover your expenses with your income which is the fundamentals of business, if that isn't possible even after a few percent IR increase then it is the wrong property . In 20 years you should then own outright an asset which is providing you with a stable income. There is no such thing as a bad business only bad businessmen. I personally never had the desire to get involved but from a purely business perspective the BTL business really is buying an asset and then making somebody else pay for it for you. You have to learn to swallow the fact that as a tenant you are in most cases paying for somebody elses retirement, its wrong but it has been that way since the dawn of time. I need to buy soon because I realise that when I hit my 50's I may not be able to rely upon my interest / investment returns to pay for the roof over my head. Where as if I have bought a roof over my head at least I know I have that !!! Quote Link to comment Share on other sites More sharing options...
_w_ Posted September 25, 2011 Share Posted September 25, 2011 I dont know why people get so uptight about this kind of post on here, I think it must really hit an extremely raw nerve. Because what we have here is little sh*ts who can't face taking a loss on their 'astute' investment and so attempt to double down by becoming apprentice BTLers. They take no account of the risks they are taking on because they don't want to, what matters is avoiding the immediate loss. And then when it all goes wrong, they will be crying to Mummy for taxpayers, their children and grandchildren to be robbed in their favour. Unfortunately the apprentice BTLer is not the kind of fish that gets a hotline to a government buddy. They are going to be squeezed like the rest of us. Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted September 25, 2011 Share Posted September 25, 2011 I dont know why people get so uptight about this kind of post on here, I think it must really hit an extremely raw nerve. I discovered that the house I rent was purchased for £47,500 in 1996. I have been paying £1,350pcm in rent for 3 years, very minimal repairs required so I have more or less bought the house for the LL. In 2020 who knows that average rent may be £2000pcm. We may have higher interest rates....but only in my opinion if the economy is on solid footing in which case you may be looking at HPI again, may be not. Eventually if you have the income to ride out the rough patches being a Landlord makes complete business sense, absolutely cast iron sense. The key is obviously buying a house or apartment that is desirable but if you have that then as long as you aren't entirely reliant on capital gains you should be able to cover your expenses with your income which is the fundamentals of business, if that isn't possible even after a few percent IR increase then it is the wrong property . In 20 years you should then own outright an asset which is providing you with a stable income. There is no such thing as a bad business only bad businessmen. I personally never had the desire to get involved but from a purely business perspective the BTL business really is buying an asset and then making somebody else pay for it for you. You have to learn to swallow the fact that as a tenant you are in most cases paying for somebody elses retirement, its wrong but it has been that way since the dawn of time. I need to buy soon because I realise that when I hit my 50's I may not be able to rely upon my interest / investment returns to pay for the roof over my head. Where as if I have bought a roof over my head at least I know I have that !!! how do you know you have more or less bought the house for the landlord. how much interest was he paying/losing? How many other BTLS has he levered onto the place? how much has be spent BEFORE you moved in? most of us dont know, and what we do find out, is what he WANTS you to think. Quote Link to comment Share on other sites More sharing options...
GeordieAndy Posted September 25, 2011 Share Posted September 25, 2011 Because what we have here is little sh*ts who can't face taking a loss on their 'astute' investment and so attempt to double down by becoming apprentice BTLers. They take no account of the risks they are taking on because they don't want to, what matters is avoiding the immediate loss. And then when it all goes wrong, they will be crying to Mummy for taxpayers, their children and grandchildren to be robbed in their favour. Unfortunately the apprentice BTLer is not the kind of fish that gets a hotline to a government buddy. They are going to be squeezed like the rest of us. I am 31, sold a UK flat at the peak (yes I did see it coming), bought a house in Thailand with cash profit (that I was fully prepared to lose) and nearly doubled my money in a little over 3 years there. We came back from Thailand with this cash to start a family and bought this family house just over 3 years ago (same time as lehmans crashing etc) again not knowing 100% which way things would fall however I made sure we got it at 30% less than peak. Now our circumstances are different and my work has taken me elsewhere so I have the choice to either become a 1 house residential landlord whilst renting somewhere a lot nicer or adding 20k to our existing savings. I have not made a loss from anything I have done so far but if we do rent this place out I will be doing so fully believing that house prices probably have another 20% to fall to get back to long term earning ratios and might be looking to buy another place in the next 5 years or so at these reduced values with our existing savings. Looking 10+ years ahead if someone else is paying off our loan for the majority of this time whilst any of our other savings are being reduced by at least 6%+ inflation year on year is it such a dumb thing to do really? I can understand some people's replies on here if they haven't got any savings, are bitter that they didn't make anything from the boom years or are risk adverse so have watched the PM's rising from the sidelines whilst taking pot shots at those who have taken calculated risks but overall no one has really shot my logic to pieces coherently so I mustn't be too crazy Quote Link to comment Share on other sites More sharing options...
_w_ Posted September 25, 2011 Share Posted September 25, 2011 I am 31, sold a UK flat at the peak (yes I did see it coming), bought a house in Thailand with cash profit (that I was fully prepared to lose) and nearly doubled my money in a little over 3 years there. We came back from Thailand with this cash to start a family and bought this family house just over 3 years ago (same time as lehmans crashing etc) again not knowing 100% which way things would fall however I made sure we got it at 30% less than peak. Now our circumstances are different and my work has taken me elsewhere so I have the choice to either become a 1 house residential landlord whilst renting somewhere a lot nicer or adding 20k to our existing savings. I have not made a loss from anything I have done so far but if we do rent this place out I will be doing so fully believing that house prices probably have another 20% to fall to get back to long term earning ratios and might be looking to buy another place in the next 5 years or so at these reduced values with our existing savings. Looking 10+ years ahead if someone else is paying off our loan for the majority of this time whilst any of our other savings are being reduced by at least 6%+ inflation year on year is it such a dumb thing to do really? I can understand some people's replies on here if they haven't got any savings, are bitter that they didn't make anything from the boom years or are risk adverse so have watched the PM's rising from the sidelines whilst taking pot shots at those who have taken calculated risks but overall no one has really shot my logic to pieces coherently so I mustn't be too crazy Financial genius wants to move but won't sell because he can find a 'friend' who is happy to pay his mortgage. It's a recurring theme on hpc. Quote Link to comment Share on other sites More sharing options...
GeordieAndy Posted September 25, 2011 Share Posted September 25, 2011 (edited) Financial genius wants to move but won't sell because he can find a 'friend' who is happy to pay his mortgage. It's a recurring theme on hpc. Not saying I am a financial genius hence why I am asking for opinions on here however I had hoped it would provoke some well reasoned arguments both for and against this type of set up like some topics do on this great site. Einstein71 seems to be the only one to looked at this as a pure business / financial decision where as you _w_ seem to one of those bitter and twisted people spitting bile at anyone that mentions renting out a property I am 100% relocating in 2 months so no want about it and am willing to pay someone else's mortgage till we decide where we want to settle long term and might sell or rent current place as stated all along. I have known this friend and his young family for over 10 years and it seems to make financial sense for both parties - they get cheaper rent due to us all not going through an agency and no resigning fees each year etc and we get mortgage paid. Which part specifically _w_ is your problem so I can understand why you are so negative towards this option I am exploring? Edited September 25, 2011 by GeordieAndy Quote Link to comment Share on other sites More sharing options...
_w_ Posted September 25, 2011 Share Posted September 25, 2011 (edited) Not saying I am a financial genius hence why I am asking for opinions on here however I had hoped it would provoke some well reasoned arguments both for and against this type of set up like some topics do on this great site. Einstein71 seems to be the only one to looked at this as a pure business / financial decision where as you _w_ seem to one of those bitter and twisted people spitting bile at anyone that mentions renting out a property I am 100% relocating in 2 months so no want about it and am willing to pay someone else's mortgage till we decide where we want to settle long term and might sell or rent current place as stated all along. I have known this friend and his young family for over 10 years and it seems to make financial sense for both parties - they get cheaper rent due to us all not going through an agency and no resigning fees each year etc and we get mortgage paid. Which part specifically _w_ is your problem so I can understand why you are so negative towards this option I am exploring? You're not the first and unfortunately probably won't be the last to come here with these wonderful stories. The stories always insist on the point that if you go for BTL some mug (usually the fairy tale says he's a 'friend') will pay for your mortgage. In the meantime, the wholly one sided tale fails to mention and price the very real risks and drawbacks associated with the venture. It aims to convince others to do the same or at least not worry about buying and then moving into NE as they can always rent to a friendly mug and make loadsamoney on his back. Win win. Other have done it before you, you're not breaking new ground here. Edited September 25, 2011 by _w_ Quote Link to comment Share on other sites More sharing options...
19 year mortgage 8itch Posted September 25, 2011 Share Posted September 25, 2011 Thanks for the further replies - sorry to hijack this thread but there must be others in a similar position to us. To answer the last few posts: We can definitely get £650 per month from friends or possibly more via agents however once you take off their fees it will end up about the same. Friends are would be first time buyers tied to local area (jobs and schools) so want security for next x years but we would do standard short hold tenancy agreement etc but with view to keep them for as long as they want. We will be +£75 or so per month between the £650 rent and mortgage costs which we will put away for maintenance etc. If we get the same as another house sold for 3 weeks ago on our street we could take £20k cash from house now. We already have some cash savings and some PM's so the cash would probably end up in ISAs etc so not an amazing return and I am a big fan of spreading risk / hedging against inflation. I'm fully aware prices could drop 50% from peak (making this place worth 80k) but if we are able to keep people in it (it's in good area, nice schools etc) then 10+ years from now we would have had someone else pay the mortgage for let's say 8 of those and simply via inflation (min 6% per year) we would be ok in real terms. Thanks again for any other thoughts etc and I am still 80% or more certain we will end up just selling it Doesn't sound like the deal of the century. I had a flat costing me £250 a month that would have rented for £500+. Worth in 2010 what we paid in 2005. The equity was from deposit and capital repayment, not HPI. Sounds like a keeper? ****** that, sold it. 1) I can do without the hassle of being a responsible landlord and 2) if I ever have a chance of buying a house suitable for my family I'll need the equity in my hand, not tied up in a 'good investment opportunity ' or worse still disappeared in a puff of smoke. I had to get off the ladder because it's ******ing broke. Quote Link to comment Share on other sites More sharing options...
InlikeFlynn Posted September 25, 2011 Share Posted September 25, 2011 If I remember correctly, lenders considering lending on a BTL look for a level of equity in the property and at the ratio of expected rental income to mortgage repayment. I suspect they would reject your case on both counts. I know you don't need to go through this exercise as you already have the house but it is instructive to think in these terms. Your projected income barely covers the mortgage patyments and you haven't mentioned maintenance costs, buildings insurance. The worst case scenario is that prices drop by 20% leaving you in negative equity, your friends circumstances change and you end up with an empty house with no rent coming in for a few month. Your current deal comes to an end and because of your negative equity you are stuck on the lenders BTL SVR which pushed up your outgoings even further. You engage an agent because you can't manage the property from your new location. They charge hundres of pounds for finding a new tenant, drawing up contracts etc. Your rental income is now subject to a 10% haircut and even with the tenant in place you are paying money to hold on to the house. Put simply, it's a risk. If you sell now, take the equity from your house and focus on your new life you wil probably have more fun and do better. You can always get in to BTL when the market has fallen a bit further. Quote Link to comment Share on other sites More sharing options...
GeordieAndy Posted September 25, 2011 Share Posted September 25, 2011 You're not the first and unfortunately probably won't be the last to come here with these wonderful stories. The stories always insist on the point that if you go for BTL some mug (usually the fairy tale says he's a 'friend') will pay for your mortgage. In the meantime, the wholly one sided tale fails to mention and price the very real risks and drawbacks associated with the venture. It aims to convince others to do the same or at least not worry about buying and then moving into NE as they can always rent to a friendly mug and make loadsamoney on his back. Win win. Other have done it before you, you're not breaking new ground here. Why do these have to be wonderful stories / fairytales? I am fully aware there are risks with becoming a landlord but if you do the sums and are not looking for increasing house prices each year but simply to cover your mortgage 90% of the time and looking 10+ years with an eye on inflation then as part of other savings / investments one property rented out isn't the crazy idea I thought it to be. Btw I am also not trying to convince anyone to do anything and am simply exploring my own options via a public forum however hopefully some aspects of my ramblings / logic will help others in similar circumstances. Quote Link to comment Share on other sites More sharing options...
GeordieAndy Posted September 25, 2011 Share Posted September 25, 2011 (edited) Doesn't sound like the deal of the century. I had a flat costing me £250 a month that would have rented for £500+. Worth in 2010 what we paid in 2005. The equity was from deposit and capital repayment, not HPI. Sounds like a keeper? It depends on what other savings / investments you have. If I remember correctly, lenders considering lending on a BTL look for a level of equity in the property and at the ratio of expected rental income to mortgage repayment. I suspect they would reject your case on both counts. I know you don't need to go through this exercise as you already have the house but it is instructive to think in these terms. Your projected income barely covers the mortgage patyments and you haven't mentioned maintenance costs, buildings insurance. All valid points - I could plough more money in if needed now to change the LTV ratios etc however this is something I wouldn't want to do. The worst case scenario is that prices drop by 20% leaving you in negative equity, your friends circumstances change and you end up with an empty house with no rent coming in for a few month. Your current deal comes to an end and because of your negative equity you are stuck on the lenders BTL SVR which pushed up your outgoings even further. You engage an agent because you can't manage the property from your new location. They charge hundres of pounds for finding a new tenant, drawing up contracts etc. Your rental income is now subject to a 10% haircut and even with the tenant in place you are paying money to hold on to the house. Put simply, it's a risk. If you sell now, take the equity from your house and focus on your new life you wil probably have more fun and do better. You can always get in to BTL when the market has fallen a bit further. We could manage with the house being empty for 12 months or more but obviously that wouldn't be ideal. Interest rates rising to 10%+ like has happened in my lifetime would be the thing that would hurt however if the BOE rate went up to 3-4% I think a lot more people would be in trouble compared to us which might bring about the real HPC and then we would just have to take it on the chin! Edited September 25, 2011 by GeordieAndy Quote Link to comment Share on other sites More sharing options...
19 year mortgage 8itch Posted September 25, 2011 Share Posted September 25, 2011 It depends on what other savings / investments you have. hedging your bets then. That's all I need to know and I'm out. Quote Link to comment Share on other sites More sharing options...
Si1 Posted September 25, 2011 Share Posted September 25, 2011 but if you do the sums I don't think you have done your sums define risk adjusted return Quote Link to comment Share on other sites More sharing options...
Game_Over Posted September 25, 2011 Share Posted September 25, 2011 I am typing via smartphone so hard to check what I have already wrote easily but thanks for your helpful comment I did not buy our house 3 years ago to become a BTL landlord etc but things change and if we can get £650 month on £130,000 property with mortgage payments of £600 then I am being tempted... You are assuming that when you have to sell the house it will still be worth 130k. What if you can only sell it for 110k? Or 95k? Correct me if I am wrong, but I understand that property prices have collapsed in one or two countries over the last few years. At the end of the day it's a gamble on general inflation, interest rates and house prices. Quote Link to comment Share on other sites More sharing options...
GeordieAndy Posted September 25, 2011 Share Posted September 25, 2011 You are assuming that when you have to sell the house it will still be worth 130k. What if you can only sell it for 110k? Or 95k? Correct me if I am wrong, but I understand that property prices have collapsed in one or two countries over the last few years. At the end of the day it's a gamble on general inflation, interest rates and house prices. I am not assuming it will still be worth 130k however we are gambling that when we have want to sell the house in 10 years or so we will owe about £65k on it and it will be worth at least 80k which I don't think is a crazy valuation when thinking about inflation alone making that initial investment not actually worth what we paid for it / what others have paid off our mortgage. Quote Link to comment Share on other sites More sharing options...
bomberbrown Posted September 25, 2011 Share Posted September 25, 2011 <br />I need to buy soon because I realise that when I hit my 50's I may not be able to rely upon my interest / investment returns to pay for the roof over my head. Where as if I have bought a roof over my head at least I know I have that !!!<br /><br /><br /><br />Are you mad? I'm currently pissing all my (deposit for a flat) money up the wall (and boy does it feel good) and when that's all gone in my 60's I'll throw myself to the state. All right, I do have a work pension, but that's beside the point. Get with the program. Quote Link to comment Share on other sites More sharing options...
Game_Over Posted September 25, 2011 Share Posted September 25, 2011 I am not assuming it will still be worth 130k however we are gambling that when we have want to sell the house in 10 years or so we will owe about £65k on it and it will be worth at least 80k which I don't think is a crazy valuation when thinking about inflation alone making that initial investment not actually worth what we paid for it / what others have paid off our mortgage. You are assuming that interest rates and rents will stay at current levels for 10 years which is extremely optimistic IMO. At the end of the day, you could make money but you could also lose a lot of money. Quote Link to comment Share on other sites More sharing options...
Game_Over Posted September 25, 2011 Share Posted September 25, 2011 <br /><br /><br /> Are you mad? I'm currently pissing all my (deposit for a flat) money up the wall (and boy does it feel good) and when that's all gone in my 60's I'll throw myself to the state. All right, I do have a work pension, but that's beside the point. Get with the program. Exactly - my mother owned her own house and had substantial savings but she got dementia and the state took everything apart from 18k which was 6k each for me and my 2 siblings when she recently died. There is absolutely no sense in working round the clock and scrimping and saving for old age I will not be making the same mistake. Quote Link to comment Share on other sites More sharing options...
miko Posted September 25, 2011 Share Posted September 25, 2011 Exactly - my mother owned her own house and had substantial savings but she got dementia and the state took everything apart from 18k which was 6k each for me and my 2 siblings when she recently died. There is absolutely no sense in working round the clock and scrimping and saving for old age I will not be making the same mistake. But it is not all about old age there is life inbetween . I used to earn good money and had a good standard of living , that has all changed now I earn below the average wage. However I have a small place paid for nothing fancy . I would not like to be with a mortgage or renting now on what I earn . The risks that I took years ago and there was a risk element to it as no one knew what would happen have led to this situation being comfortable . As for throwing myself on the state in retirement yes that might not be a bad move , but at my age without any kids to increase benefits and provided a state funded house life on the state would be far worse than the standard of living I have now. Quote Link to comment Share on other sites More sharing options...
Gerinako Posted September 26, 2011 Share Posted September 26, 2011 (edited) I love my landlord We're on good friends terms so often share a drink together every now and again - one time she came round she asked what would I do to the place if I owned it. So I said I'd have a breakfast bar here as the space is just wasted otherwise, put some blinds in there as I get self conscious at night with the lights on when in the kitchen etc etc. About a month later "Can I send some workmen to your flat to do some repairs on xyz and I'll treat you to dinner while it's done?" I go - come back and see all suggestions done. Winner! Edited September 26, 2011 by Gerinako Quote Link to comment Share on other sites More sharing options...
Fairies Wear Boots Posted September 26, 2011 Share Posted September 26, 2011 I love my landlord ... and I'll treat you to dinner while it's done?" How much does your landlord like you??? You sure she's not coming onto you?! As for the original post, it's quite gobsmacking that BTLers are now 'investing'. Quote Link to comment Share on other sites More sharing options...
spunkbubble Posted September 26, 2011 Share Posted September 26, 2011 it's quite gobsmacking that BTLers are now 'investing'. Not surprised by this. They are what will probably limit any falls or even push prices a little further. Savings are returning nothing, shares a nightmare the past few years. BTL in a market where rents are rising makes a lot of sense. While BTL is still attractive people trying to get on the ladder will be up against these 'investors' competing for property at the lower end (which is where most of them buy). Doubt we will see it taxed properly which is what it should of been to begin with. Some reduction in available mortgages might help but not by much. In my view BTL is the biggest reason prices have climbed so high and become out of reach for so many. Quote Link to comment Share on other sites More sharing options...
Gerinako Posted September 26, 2011 Share Posted September 26, 2011 (edited) How much does your landlord like you??? You sure she's not coming onto you?! As for the original post, it's quite gobsmacking that BTLers are now 'investing'. Positive she's not - she's married; just share very similar interests/hobbies so good company! Edited September 26, 2011 by Gerinako Quote Link to comment Share on other sites More sharing options...
Einstein71 Posted September 26, 2011 Share Posted September 26, 2011 (edited) how do you know you have more or less bought the house for the landlord. how much interest was he paying/losing? How many other BTLS has he levered onto the place? how much has be spent BEFORE you moved in? most of us dont know, and what we do find out, is what he WANTS you to think. I know that in 3 years he has received from me what he originally paid for the house 15 years ago. I assume he has paid some interest over the past 15 years so may be another 1-2 yrs rental to cover that. The house is his only house in the UK, he owns a house in Kenya where he has lived for a lot of his life. He isn't a BTL investor he is just somebody who decided to rent his house out rather than sell it. The house is more or less in its original state apart from a new front door and new boiler. For his initial investment of just shy of £50k he now earns himself an income of around £1000pcm (£300pcm deducted for letting fees and maintenance). He was lucky and bought low. My point was that any landlord who had bought 10yrs+ ago is probably covering their initial purchase price with 3-5 yrs rental, if you look at the housing market historically from a pure unemotional perspective you see that it always makes sense to rent your property out rather than sell it. If you believe that house prices will drop by 40% and Interest Rates will rise at the same time as rents dropping for the first time in history and house values will never rise again then I can see why you wouldn't believe it to be a good decision. As someone who has been renting for 7 years now I fully accept that I am a cog in a system that is really unfair and did have belief in the powers that be that something would be done about it. Here I am working my guts out to pay off a mortgage which isn't mine !!!! , how can that be fair? I am now thinking that I was wrong and that the aim is to make BTL as desirable as possible to encourage house building and private rentals to establish a network of flexible accomodation for a growing populace. In some ways this takes the power from a few very wealthy people and on to an army of private "investors". In a sick and twisted way the Government probably believe BTL is an ideal way to solve a number of major problems. It offers a decent return for those holding cash and an alternative to savings and other volatile investment vehicles, as a result it allows them to keep IR's low for the indebted. The guy wanting to rent out his place to a friend should do so immediately, jump on the gravy train. Your friend gets a place where he knows he isn't going to get thrown out in 6 months time and you get your mortgage paid. A whole host of doomday scenarios could happen but these have been around the corner for 7 years now and the same people will just repeat the mantra. You will most likely have the place still in 15 years time, getting £1100pcm for it and the mortgage paid off, you wont care about the £30k it has dropped in value because some tenant mug would have paid that for you anyway :-) Edited September 26, 2011 by Einstein71 Quote Link to comment Share on other sites More sharing options...
GeordieAndy Posted October 4, 2011 Share Posted October 4, 2011 For anyone remotely bothered we have accepted an offer on our house (~25% from peak prices) and all looks to be proceeding ok. Our friend who wanted to rent our house is gutted but in the end we decided to take the money now and not have to be tied in any way to the house / mortgage / repairs etc Also some further information, we bought in Nov 2008 as we did think it might be THE family home as if jobs etc went really badly we could walk to schools, shops and beach etc but thankfully I am progressing with my career etc etc so we are off to try somewhere else. Lastly as we bought at good discount (was a repo) we have just about broke even which in todays market I am happy with Good luck to others out there weighing up their options. Quote Link to comment Share on other sites More sharing options...
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