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Saving For a Space Ship

"btl Returns Beat All Other Mainstream Investments" ? Dt

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"Buy-to-let returns beat all other mainstream investments "

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11520110/Buy-to-let-returns-beat-all-other-mainstream-investments.html

Buy_to_let_chart_s_3259314b.jpg

The study, published today by former economist Rob Thomas .......

Heres his client list - http://www.wriglesworth.com/clients/clients

Including our old friend Stuart Law of Assetz

We are PR experts in the Financial Services, Property, Professional Services, Recruitment and HR sectors, carrying out consumer, corporate and B2B briefs

Tractor production is up again comrades !!

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Edited by Saving For a Space Ship

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A 1996 start date will always favour property investment: you're buying in a market at historic lows. And of course leverage flatters it: a leveraged bet on the stockmarket over the same period would look pretty decent too, despite that not being so cheap in 1996.

Repeat with a start date ten years on and the results would look different!

Or even with a start date five years on, when house prices had risen to more normal levels before bubbling.

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I think all that's saying is if you buy on margin and price goes up you gain more (and in case of BTL deposit someone loses more). Opposite to price going down. Edit - yeah porca already said that.

Edited by northshore

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I must be missing something here. How can a BTL rental with a 75% mortgage/25% deposit outperform a BTL rental bought with cash? :blink:

Surely the cash bought rental will have no mortgage repayments to be met from the income. Or is this some sort of tax avoidance thing?

Edited by MattW

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I must be missing something here. How can a BTL rental with a 75% mortgage/25% deposit outperform a BTL rental bought with cash? :blink:

Surely the cash bought rental will have no mortgage repayments to be met from the income. Or is this some sort of tax avoidance thing?

I do'nt understand that one either.

But I do know that if you manipulate and massage figures enough you will get the answer you want.

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Clearly we should all just rent rooms to each other. No need for complicated stuff like building cars.

No need to do complicated stuff like building cars if we sell each other houses for ever increasing sums.

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I must be missing something here. How can a BTL rental with a 75% mortgage/25% deposit outperform a BTL rental bought with cash? :blink:

Surely the cash bought rental will have no mortgage repayments to be met from the income. Or is this some sort of tax avoidance thing?

1) It's a report commissioned for Landbay, a BTL P2P platform.

2) They calculate return on investment, using a made up total return index with assumptions

3) Income is reinvested, which in case of leveraged BTL means reinvesting cashflow into another BTL deposit

4) Leverage in an up-market wins, whether zero sum or not.

This is a similar one they did for Paragon last year, because there's never enough pro-BTL pr articles:

http://www.wriglesworth.com/images/Buy-to-let_comes_of_age_-_a_comparative_analysis_of_returns_for_buy-to-let_and_other_major_asset_classes.pdf

If you paid someone enough and they know it will be summarised in about 500 words from headlines they could produce a report on relative asset classes pronouncing anything you like.

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I must be missing something here.

Look up this very thread. It's called leverage.

How can a BTL rental with a 75% mortgage/25% deposit outperform a BTL rental bought with cash? :blink:

£500/month rent on a £100k house, and allow £1000/year upkeep and voids. £5k/year = 5% return.

But with a £75k mortgage, that's £5k/year on just £25k, making a 20% return. If the mortgage payments eat half of that, you still have 10%.

The effect on capital gains works even when interest rates are higher. And capital losses only matter if you have capital to lose: if you have nothing to lose then you walk away and the bank takes the loss. Or even the taxpayer if the government of the day rejects market forces and insists on pouring good money after bad.

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I must be missing something here. How can a BTL rental with a 75% mortgage/25% deposit outperform a BTL rental bought with cash? :blink:

Surely the cash bought rental will have no mortgage repayments to be met from the income. Or is this some sort of tax avoidance thing?

I do'nt understand that one either.

But I do know that if you manipulate and massage figures enough you will get the answer you want.

Leverage.

A physical lever used with a suitably located pivot allows you to multiply the magnitude of the force applied by the user to the lever (the effort) into a larger force applied by the other end of the lever to the object you're lifting (the load). This is why pulling nails out with a claw hammer is easier than pulling them out with pliers.

Financial leverage (i.e. supplementing the money you have to invest with borrowed money) multiplies capital gains if asset prices rises (and multiplies capital losses if asset prices fall).

For example. If I pay £200,000 for a horrid BTL hovel with cash and prices go up by 10%, my capital gain if I sell at £220,000 is £20,000. As I invested £200,000 my capital gain expressed in percentage terms is 10%.

However, if I had bought the same hovel with a 75% LTV mortgage I only have to invest £50,000 to obtain the same capital gain. After prices rise by 10% I make the same nominal gain but I find that my capital gain, expressed in percentage terms is 40%.

During the bubble we had a situation where a bank might lend at 90% LTV. The same £200,000 invested as ten £20,000 deposits would now produce a 100% capital gain. You could turn your £200,000 into £400,000.

Leverage is really bad news if prices move against you. If you are 90% LTV on the example £200,000 and prices retrace by 20% and you have to sell then even ignoring transaction costs, you sell for £160,000 and your original money is gone and you still owe the bank £20,000 as you were unable to return all the money you borrowed - a capital loss of 200%

Today, you will not find a bank is willing to provide borrowed money so that you can turn £200,000 into £1,800,000 of mortgages and a £200,000 deposit enabling you to buy ten flats.

Retail investors never understood that the magic of BTL was the result of the banks pumping new credit money into the housing market. The pump has broken. The lending environment is totally different. In order to get into BTLtoday you'll need a decent income, lots of equity, a fat deposit and they won't allow you to get to a position where you have a multi-million Fat Fergus style empire where you own half of Ashford. Fat Fergus was early entrant BTL. Today's clowns are getting a different offer - late entrant BTL.

I'd guess one of the things that is going on is that earlier entrants BTLers with little or no equity who have now found out the hard way that the net cash flows are only marginally positive, even in a good month, are getting out (like rats leaving a sinking ship).

They are being replaced by a new cohort of mug investors with good jobs, lots of equity and lots of cash. Also I'd speculate that these investors are only being allowed small portfolios of property - many operating just a single property, basing this speculation on the fact that Carney says that BTL credit underwriting standards are holding up.

When prices correct the banks are much better off for having replaced earlier entrant BTLers (who have nothing to cough up when the loan goes sour and the sales proceeds don't cover what's owed, producing a capital loss for the bank) with late entrant BTLers (who have income and other assets which can be used ensure the bank is made whole on the mortgage - i.e. ensure the bank gets all their money back).

BTL is ever and always a capital gain play

My intuition is that mug investors, believing that there will be a capital gain, will bid up sale prices to extinguish any positive net cash flow from the the month-to-month 'operation' of the BTL (i.e. rent minus mortgage costs and such). They don't have to understand anything or know anything; they just need to believe that a capital gain is inevitable, (sound familiar?). Whenever I look at the prices paid locally and the rents achieved, it seems to me that BTLs at the beginning operate with negative cash flows. (This argument needs fleshing out and a good look at BTL lenders rules, but it'll do for now...)

There is no such thing as a free lunch. The pre-2008 BTL 'free lunch' was achieved by ludicrous lending; the bill arrived in due course and its poster boy is Bradford and Bingley's captive BTL lender, Mortgage Express, which is sitting in the books of UK Asset Resolution (the state operated bad bank).

In fact anyone looking at early-entrant BTLers who thinks that they did get a free lunch has overlooked the fact that there was a price paid for the so-called free lunch, but it is being paid now, by someone else. Though the mechanisms are subtle, the reality is that via state-directed policy interventions through a myriad of different channels, we are all paying for their 'free lunch'. BTL is a disease. When looked at from the perspective of our society, when we pay attention to people who don't yet own, like our children, BTL is nothing but a good way for the banks to make profits by allowing us to fight like dogs over our shit housing stock. Sometimes it disgust me but in cheerier moments I just find it embarrassing; this how dumb we are and how easily we are fooled by a predatory financial sector - morons baying for mooaarr debt and mooaarr HPI.

Edited by bland unsight

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Heres his client list - http://www.wriglesworth.com/clients/clients

Including our old friend Stuart Law of Assetz

The author of this report appears to be a full-time debt pimp of the banking-housing Ponzi.

He's also the author of this report (h/t Neverwhere) mentioned on another thread, from which this About The Author section is taken:

Rob Thomas is Director of Research at IMLA and Director of Business Development and Research at The Wriglesworth Consultancy. A highly experienced analyst and economist, he previously served as an economist at the Bank of England (1989-1994), a high profile analyst at the investment bank UBS (1994-2001) and as senior policy adviser to the Council of Mortgage Lenders (CML) (2005-12). He was also the project originator and manager at the European Mortgage Finance Agency project (2001-05) and created the blueprint for the government backed NewBuy 95% LTV mortgage scheme.

Ladies and gentleman, we have discovered the Ramper Prime. We must now find a way to re-educate him.

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Of course a leveraged position in property will have given monster returns from 1996. However, outside London, that profit would have been concentrated in a brief window between 1999-2003/ 4.

Indeed houses in my area quadrupled in the ten year period from 1996-2006, almost entirely slotted into a four year window of Gordon Brown at his maddest . On a four times leveraged position that is a 16 times return.

The last six years the smart money has been Equities. I wasn't smart enough to realise that until 2012.

Timing not time is everything with asset purchases.

Edited by crashmonitor

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