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A work colleague came ask my advice last week. He knows I'm pretty clued up about the housing market and mortgages etc. he wanted to know what the potential risks are with buying a property to let within the next year or two to supplement his pension in retirement. He is 29 currently with a piss poor work pension which he has only just started.

So I basically came out with all the potential problems ie shit yield (better off having money in the bank) possible HPC or gradual falling prices for several years. Maintenance/ voids / bad tenants/ mangagment costs.

But to him none of this matters. He says as long as the rent covers the mortage/maintenance/voids and fees then he doesn't care about. 0 yield as its a pension. All he wants is in 25 years to have a mortgage free property providing him rental returns. He even said he doesn't mind having to top up a small amount each month as he sees as paying into the pension.

So what am I missing? It does seem to be a good idea for diversifying and supplementing his standard pension/state pension (if there is one!?) I need some arguments against to come back with.

Edit: iPhone word twisting!!

Edited by Pent Up

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A work colleague came ask my advice last week. He knows I'm pretty clued up about the housing market and mortgages etc. he wanted to know what the potential risks are with bullying a property to let within the next year or two to supplement his pension in retirement. He is 29 currently with a piss poor work pension which he has only just started.

So I basically came out with all the potential problems ie shit yield (better off having money in the bank) possible HPC or gradual falling prices for several years. Maintenance/ voids / bad tenants/ mangagment costs.

But to him none of this matters. He says as long as the rent covers the mortage/maintenance/voids and fees then he doesn't care about. 0 yield as its a pension. All he wants is in 25 years to have a mortgage free property providing him rental returns. He even said he doesn't mind having to top up a small amount each month as he sees as paying into the pension.

So what am I missing? It does seem to be a good idea for diversifying and supplementing his standard pension/state pension (if there is one!?) I need some arguments against to come back with.

A Freudian Slip?

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1. Voids - if he goes a few months without tennants how will he pay the mortgage.

2. Bad tennants - people who trash the house and/or do not pay his rent for a few months and/or they refuse to leave so he has to spend money to get them out and/or they then counter sue for a 1001 silly reasons and/or they take the fridge and the oven and the carpets, etc, etc.

3. The govt announces a massive house building programme and hands 10 billion over to housing associations the day after he buys his BTL.

4. Interest rates actually do rise.

5. I am bored now.

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nothing wrong with BTL

the issue is the leverage used to get to the 25 year point....many cant even do it with a repayment mortgage...the figures dont add up.

Ofcourse, he may well be paying £100 or so into a private pension, which he may feel he could forgo and use to cover for voids etc etc.

but, the whole financial case for BTL is that HE can buy the house cheaper than a potential renter can....which usually means IO, there is a tax advantage in that the repayments are pre tax, but at the end of the day the sum is rental income - (mortgage+costs outgo).

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1. Voids - if he goes a few months without tennants how will he pay the mortgage.

2. Bad tennants - people who trash the house and/or do not pay his rent for a few months and/or they refuse to leave so he has to spend money to get them out and/or they then counter sue for a 1001 silly reasons and/or they take the fridge and the oven and the carpets, etc, etc.

3. The govt announces a massive house building programme and hands 10 billion over to housing associations the day after he buys his BTL.

4. Interest rates actually do rise.

5. I am bored now.

Thanks TMT interest rates was what I was missing! I knew there was something!

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Thanks TMT interest rates was what I was missing! I knew there was something!

VIs, would say that rising rates are the EXACT reason people with cash should get into BTL..as people wont be buying houses at all.

Ofcourse, if no-one can afford houses at the interest rate available, then prices will fall....they forget this caveat conveniently...If you are a cash buyer looking for monthly returns, then it is pretty much a non issue, but if you are 80% mortgaged, then you are pretty close to being wiped out with quite a small drop in price.

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BTL is an interest only game isn't it and he's wanting to repay the mortgage? Clearly he doesn't understand the business model.

Who knows what the best long term option is, everything has flaws if hyperinflation hits holding paper money will prove worthless and BTL may prove a great investment providing you don't need to sell the house to buy bread.

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BTL is an interest only game isn't it and he's wanting to repay the mortgage? Clearly he doesn't understand the business model.

Who knows what the best long term option is, everything has flaws if hyperinflation hits holding paper money will prove worthless and BTL may prove a great investment providing you don't need to sell the house to buy bread.

rates will rise to fight the hyperinflation, crashing house prices, jobs and rentals.

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Today's news: rising rent arrears.

Future likelihood of the Big One: realignment of financial incentives to make it expensive to own property, especially empty property. Like, property taxes more in line with many other developed nations (my 'merkin colleague who pays just over $5k/year tax on a $170k house, for instance).

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Today's news: rising rent arrears.

Future likelihood of the Big One: realignment of financial incentives to make it expensive to own property, especially empty property. Like, property taxes more in line with many other developed nations (my 'merkin colleague who pays just over $5k/year tax on a $170k house, for instance).

An acquaintance who is Singaporean told me just the other day of friends of hers (also Singaporean) who have 2 flats in Kensington which they use for just one month a year in the summer. They are not rented out for the rest of the year. They pay £15K a year just in maintenance/service charges.

Edited by Mrs Bear

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A work colleague came ask my advice last week. He knows I'm pretty clued up about the housing market and mortgages etc. he wanted to know what the potential risks are with buying a property to let within the next year or two to supplement his pension in retirement. He is 29 currently with a piss poor work pension which he has only just started.

So I basically came out with all the potential problems ie shit yield (better off having money in the bank) possible HPC or gradual falling prices for several years. Maintenance/ voids / bad tenants/ mangagment costs.

But to him none of this matters. He says as long as the rent covers the mortage/maintenance/voids and fees then he doesn't care about. 0 yield as its a pension. All he wants is in 25 years to have a mortgage free property providing him rental returns. He even said he doesn't mind having to top up a small amount each month as he sees as paying into the pension.

So what am I missing? It does seem to be a good idea for diversifying and supplementing his standard pension/state pension (if there is one!?) I need some arguments against to come back with.

Edit: iPhone word twisting!!

I have always been against the idea of BTL for the risk and hassle factors already mentioned in this thread, but there is no doubt it can be the easiest way of making money if you are lucky.

I started a thread this morning about a house that is on the market for £410k having been bought for £240k three years ago. That is a 70% increase in the capital value. No work has been done to the place.

Even assuming the seller takes a big cut from the asking price and only makes 50% profit that is still a fantastic return and he wouldn't even have had to bother with the potential hassle of renting it out. Just lock it up and leave it to appreciate in value by £150 A DAY compared to £10 in a bank account if you are lucky. It sounds like a Daily Express headline and it is no wonder that people like your colleague are considering getting in to it.

Of course, the risk is that interest rates go up and these houses start losing £50 a day, but with this government who can say when that is going to happen.

I personally never subscribe to the 'long term investment' argument for BTL. If I buy a home to live in for what I think is a reasonable price and it goes down in value by 20%, I'd be disappointed but pleased that it may actually help me buy my next home a little easier. If I buy a BTL and it goes down by 20%, I'd be furious because it is only an investment and the money would have been safer in a shoebox under my bed!

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A silly idea I had today was to buy a house instead of an annuity. and tell the tenants that when I die the house is theirs.

Looking at the annuity rate about 4.6% for a 55 year old the income seems comparable. I would tell the tenants to do their own maintenance.

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So what am I missing? It does seem to be a good idea for diversifying and supplementing his standard pension/state pension (if there is one!?) I need some arguments against to come back with.

Edit: iPhone word twisting!!

When IRs rise he will lose capital and will not get the rent he needs for his needs. He will then find it's better to have cash on deposit. Times change.

Edited by Killer Bunny

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I have always been against the idea of BTL for the risk and hassle factors already mentioned in this thread, but there is no doubt it can be the easiest way of making money if you are lucky.

I started a thread this morning about a house that is on the market for £410k having been bought for £240k three years ago. That is a 70% increase in the capital value. No work has been done to the place.

Even assuming the seller takes a big cut from the asking price and only makes 50% profit that is still a fantastic return and he wouldn't even have had to bother with the potential hassle of renting it out. Just lock it up and leave it to appreciate in value by £150 A DAY compared to £10 in a bank account if you are lucky. It sounds like a Daily Express headline and it is no wonder that people like your colleague are considering getting in to it.

Of course, the risk is that interest rates go up and these houses start losing £50 a day, but with this government who can say when that is going to happen.

I personally never subscribe to the 'long term investment' argument for BTL. If I buy a home to live in for what I think is a reasonable price and it goes down in value by 20%, I'd be disappointed but pleased that it may actually help me buy my next home a little easier. If I buy a BTL and it goes down by 20%, I'd be furious because it is only an investment and the money would have been safer in a shoebox under my bed!

But to be fair he is never going to sell that house is he. It will be taken off the market. Not unless he bought in some underhand way not at fair market value in the first place.

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Depends on how leveraged he would have to be to get into BTL. The under leveraged BTL investor who bought/inherited 20/30 years ago and didn't leverage up will always survive and be able to undercut on rents when things get tough.

However paying into a pension costs money, so he should expect to dip into his own pocket and subsidise his tenants.

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What tax will he pay on pension contributions compared to the tax paid on rental income?

From what he was saying any rental income will be a bonus which he will put back into overpaying the mortgage. Looking at yields currently on ready to let properties he will be lucky to get a yield! He doesn't have a massive deposit currently.

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I get weary of this. Because I'm a pension fund trustee I get lots of questions about using BTL as a pension.

I understand the superficial, something for nothing, attraction of it. For someone who's in a decent job with a lot of equity in their house (and can therefore borrow easily at ultra low rates) BTL looks like a get out of jail free card. But I remind them BTL is effectively a highly leveraged play on continually appreciating house prices, low interest rates, and landlord friendly legislation. None of which can be even remotely relied upon.

But for every one who genuinely thinks this through there are many more who just stop their ears.

The reality is they're mostly in their late 40's or early 50's with crap pension provisions, expensive lifestyles, and jobs they really don't enjoy anymore. So the real choice facing them is to drastically cut back to save like they've never saved before, or work into their 70's.

And faced with a tough choice like that they much prefer the fairy story BTL option.

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From what he was saying any rental income will be a bonus which he will put back into overpaying the mortgage. Looking at yields currently on ready to let properties he will be lucky to get a yield! He doesn't have a massive deposit currently.

IMHO the best advice with pensions is (1) make the most of tax allowances given by the Govt - they are really worth a lot if you are currently a higher rate tax payer, but will be standard rate tax payer in retirement, and (2) diversify as much as possible, because over my working life, investment fashions have changed, companies have shown real deviousness (Equitable Life), the Govt has changed the rules many times, and your own retirement objectives may change over time. Real pension funds (unlike BTL) are protected from bankruptcy.

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1. Voids - if he goes a few months without tennants how will he pay the mortgage.

2. Bad tennants - people who trash the house and/or do not pay his rent for a few months and/or they refuse to leave so he has to spend money to get them out and/or they then counter sue for a 1001 silly reasons and/or they take the fridge and the oven and the carpets, etc, etc.

3. The govt announces a massive house building programme and hands 10 billion over to housing associations the day after he buys his BTL.

4. Interest rates actually do rise.

5. I am bored now.

:P:DB)

11/10

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A work colleague came ask my advice last week. He knows I'm pretty clued up about the housing market and mortgages etc. he wanted to know what the potential risks are with buying a property to let within the next year or two to supplement his pension in retirement. He is 29 currently with a piss poor work pension which he has only just started.

So I basically came out with all the potential problems ie shit yield (better off having money in the bank) possible HPC or gradual falling prices for several years. Maintenance/ voids / bad tenants/ mangagment costs.

But to him none of this matters. He says as long as the rent covers the mortage/maintenance/voids and fees then he doesn't care about. 0 yield as its a pension. All he wants is in 25 years to have a mortgage free property providing him rental returns. He even said he doesn't mind having to top up a small amount each month as he sees as paying into the pension.

So what am I missing? It does seem to be a good idea for diversifying and supplementing his standard pension/state pension (if there is one!?) I need some arguments against to come back with.

Edit: iPhone word twisting!!

If hes a basic rate tax payer he will have a tax bill for 30% of the capital component of the rent.

Hes relying on interest rates staying at a historic low for 20 years.

There were around 700,000 IO mortgages issued between 2003 - 2007 which means a baked in property price collapse starting around 2025

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  • 244 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%



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