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davidg

Btl To Return 11% Pa To 2024

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Buy-to-let investors have made £12,000 profit on every £1,000 they put into property – returns that have far outstripped every other type of investment. The report by Paragon Mortgages to mark the 18th birthday – or "coming of age" – of buy to let, predicts that landlords will continue to make an average of 11% a year for the next decade.

http://www.theguardian.com/business/2014/apr/26/returns-for-buy-to-let-landlords-dwarf-other-investments

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Let's be honest if you were Paragon and got free advertising in the DT/Guardian etc you'd go for it. As long as folk think they will make money out of BTL they will pile into it. As we have discussed many times on here it is sentiment that will change the market. Paragon are just trying to con people into a huge BTL mortgage that will quite probably strip them of their life savings or their own residential property. At some point the DT will be full of former BTL "investors" bemoaning that there are no council houses for them now they are bankrupt.

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Those that got in early with the most leverage, as in all speculate asset appreciation situations, have had huge returns. Hardly rocket science.

The predicted 11% p.a. returns for the next decade are not achievable without capital appreciation dwarfing the rental returns.

If a BTLer pays £200k for a 3 bed semi near me, and puts in a £50k deposit (75% LTV) then to get the 11% p.a. return on their £50k means getting another £100k over ten years.

Gross rent is around £9k, accounting for voids, fees etc put it down to £8k, hardly overly cautious.

4% interest on the mortgage eats £6k of that per year.

So £2k per annum return from the rent is £20k over the period. Oops, the remaining £80k predicted by Paragon is a 40% asset appreciation!!

HPI forever junkies..........

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Great news. We are obviously at the peak ( again ). Have they not learned their lesson. Will the peoples government not stop BTL speculation and Help people To Buy ?

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Those that got in early with the most leverage, as in all speculate asset appreciation situations, have had huge returns. Hardly rocket science.

The predicted 11% p.a. returns for the next decade are not achievable without capital appreciation dwarfing the rental returns.

If a BTLer pays £200k for a 3 bed semi near me, and puts in a £50k deposit (75% LTV) then to get the 11% p.a. return on their £50k means getting another £100k over ten years.

Gross rent is around £9k, accounting for voids, fees etc put it down to £8k, hardly overly cautious.

4% interest on the mortgage eats £6k of that per year.

So £2k per annum return from the rent is £20k over the period. Oops, the remaining £80k predicted by Paragon is a 40% asset appreciation!!

HPI forever junkies..........

As promised earlier... This was put through my door this week. The small print, bottom left before the email address says "*We will rent the property from you at 7% of the purchase price"

The reverse is for FTBs but they don't quite square the circle with 5% deposits and 75% LTV mortgages...

scum.jpg

post-5383-0-32833700-1398506189_thumb.jpg

Edited by 7 Year Itch

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As promised earlier... This was put through my door this week. The small print, bottom left before the email address says "*We will rent the property from you at 7% of the purchase price"

The reverse is for FTBs but they don't quite square the circle with 5% deposits and 75% LTV mortgages...

if it is such a good deal why don't sherwood simply rent the properties out themselves?

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if it is such a good deal why don't sherwood simply rent the properties out themselves?

Exactly my thoughts.

It goes on to say if you had invested £130k 25 years ago..... The I would have been a very rich 10 year old!

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It probably is more in most areas when capital gains and increasing rents are considered based on zero mortgage.

With gearing (big mortgage) this figure goes up quite a bit especially in London where prices have been going up 20% a year.

Inward migration into London will only make the situation worse and worse. Trying to tinker around with lending critera will help keep many unable to buy and thus lower demand slightly but there are increasingly more people wanting some of the action whilst other investment areas are so unrewarding.

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Great news. We are obviously at the peak ( again ). Have they not learned their lesson. Will the peoples government not stop BTL speculation and Help people To Buy ?

A peoples government might, but sadly some the people, who also happen to be voters, have also been let in on the little scam!

Edited by aSecureTenant

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if it is such a good deal why don't sherwood simply rent the properties out themselves?

You have correctly noted that something does not quite add up. This offer is a marketing ploy. They make this guarantee for 3 years, after which it falls away.

Let's assume that the genuine retail yield is nearer 5% on these properties. This means that for 3 years the company will have to pay 2% of the value i.e. 6% in today.

Assume the investor needs a 7% profit to make it worthwhile, with borrowing costs at 5%, they can pay £200,000 for a flat, pay £10k interest and receive £14k rent, or a gross profit of £4k.

However, the real rent in the area is probably £10k a year. £10k is 7% of £143k. Suddenly the £200,000 price tag is unattractive.

By offering a 3 x £4000 subsidy, the seller is able to sell the property for £57000 more than it is worth at that rental yield, bagging the developer an increased profit of £45,000 if the cunning ploy works.

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Any one got a graph of how 10% yoy looks for any investment ?

The words...unsustainable madness springs to mind.

Here you go, I made one especially for you. Based on a 100k investment in 1990 and a 10% yoy return, you would have 3 million.

6NUQf5d.png

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I love it...since 1996.

Guess what, if you happened to buy the stock exchange in early 2009, youd get an EVEN HIGHER return.

How many BTL investors actually got in in 1996?

Most 'caught the bug' when Homes under the hammer was polluting the airwaves, between 2003-2006. IN FACT in 1999 only 50,000 BTL mortgages were issued, in 2007 it was 350,000. Dont have figs for 1996, but i doubt its much into even double figure thousands.In money terms, BTL morons ploughed in more than 10 times as much in the first half of 2007 as 1999.

http://www.emeraldinsight.com/content_images/fig/3510020203001.png

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While rents appear to be static to falling in some areas as reported by posters i think from ONS stat's, and hpi high no wonder the PR machine is in overdrive. Rental yields for new entrants in some areas could be under pressure. It will be interesting to see how btl mortgage numbers hold up. I wonder which lenders are big in new btl? Building soc's?

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My in-laws bought a BTL with 100% cash and get a return of 4.6% before costs and tax.

I told them they should have bought dividend playing blue chip stocks instead but "you can't go wrong with bricks and mortar". I thought they were wrong and would soon come unstuck.

However since buying it they've had 2 unsolicited offers for £50k more than they paid for it, one from the tenant and one via their rental agents. If they accepted this offer the new owners would be yielding just over 3.5% before costs.

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My in-laws bought a BTL with 100% cash and get a return of 4.6% before costs and tax.

I told them they should have bought dividend playing blue chip stocks instead but "you can't go wrong with bricks and mortar". I thought they were wrong and would soon come unstuck.

However since buying it they've had 2 unsolicited offers for £50k more than they paid for it, one from the tenant and one via their rental agents. If they accepted this offer the new owners would be yielding just over 3.5% before costs.

The yields look relistic.

Al iit takes is for the average 2 month void to blow that 4% yield out of the water.

Imagine trying to do it with borrowed money @ 5%

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