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longtomsilver

A Neighbour Just Bought Into The Btl Dream.

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A very successful* neighbour and friend of mine (he lives on the posh road; same village, same school for the children but anyway I digress) has just bought a £150,000 BTL turd in a not particularly nice area of Brum. Basically, the drawdown facility on his main home (which has appreciated 100%) has given him access to a lot of cheap money (1% he tells me) and clouded his judgement. His wife is bragging about the purchase on bookface. I did try telling him his gross yield of 5% would be more like 1.5% net after fees, cost of capital etc but he wouldn't listen. They also have no savings, are terrible with money by their own admission in spite of being in the top 2%.

I'll keep you posted.

My sister and brother-in-law did much the same on their country cottage but buying a holiday let in Ipswich (and they are using the mortgage faculty to assist with private school fees).

When the tide goes out... It's me pension innit.

* Operations Director for a listed multinational PLC we've all heard of.

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A very successful* neighbour and friend of mine (he lives on the posh road; same village, same school for the children but anyway I digress) has just bought a £150,000 BTL turd in a not particularly nice area of Brum. Basically, the drawdown facility on his main home (which has appreciated 100%) has given him access to a lot of cheap money (1% he tells me) and clouded his judgement. His wife is bragging about the purchase on bookface. I did try telling him his gross yield of 5% would be more like 1.5% net after fees, cost of capital etc but he wouldn't listen. They also have no savings, are terrible with money by their own admission in spite of being in the top 2%.

I'll keep you posted.

My sister and brother-in-law did much the same on their country cottage but buying a holiday let in Ipswich (and they are using the mortgage faculty to assist with private school fees).

When the tide goes out... It's me pension innit.

* Operations Director for a listed multinational PLC we've all heard of.

The key phrase here is:

"bought a £150,000 BTL turd in a not particularly nice area of Brum."

What is it they say....location location location.

You couldnt make it up.

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We've all got family / friends who've done similair in the last 10yrs or so. Patrons of this site are the minority now.......ie. no BTL or dream of having a BTL.

It's Tulip Mania , but not with tulips.

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We've all got family / friends who've done similair in the last 10yrs or so. Patrons of this site are the minority now.......ie. no BTL or dream of having a BTL.

It's Tulip Mania , but not with tulips.

Living the dream... the Brown dream was about owning you're own home and watching it soar in value whereas the Osborne dream is more about owning someone else's home and farming the occupants for rent.

Edited by zugzwang

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The key phrase here is:

"bought a £150,000 BTL turd in a not particularly nice area of Brum."

What is it they say....location location location.

You couldnt make it up.

Location, location location is the only estate agent mantra I agree with and it's funny how even on the show Krusty and Co lead people to pay over the odds on homes in less salubrious areas.

Having access to so much (banks) capital must eat into ones psyche. The caption that accompanied the photo was my dream home, lol this lot will probably be ok as the husbands occupation will bail them out but for the majority the irony will be lost on them when they are forced to downsize; at least they'll have somewhere to go.

Edited by longtomsilver

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Living the dream... the Brown dream was about owning you're own home and watching it soar in value whereas the Osborne dream is more about owning someone else's home and farming the occupants for rent.

Can't agree too much with that. I know plenty of family / friends who got into BTL on Brown's / Labour's watch.

The prospect of "no more boom and bust" was the driver. Couple with Greenspan/Bernanke and the US going mad in the US and cutting rates every quarter or so.

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Living the dream... the Brown dream was about owning you're own home and watching it soar in value whereas the Osborne dream is more about owning someone else's home and farming the occupants for rent.

Yes BTL was unheard of before 2010.

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I did try telling him his gross yield of 5% would be more like 1.5% net after fees, cost of capital etc but he wouldn't listen.

Since hes a high rate tax payer he will also lose 40% of any rent in excess of the interest payments (assuming he declares it of course).

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Since hes a high rate tax payer he will also lose 40% of any rent in excess of the interest payments (assuming he declares it of course).

It's a joint purchase and as the money is coming from the mortgaged main home they won't be able to offset the mortgage interest against the profit. I'd assume 50% of the income (less agencies fees) will be against his higher rate and 50% against the wife's (who has only recently returned to work so 40% and 20% respectively.

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Since hes a high rate tax payer he will also lose 40% of any rent in excess of the interest payments (assuming he declares it of course).

That tallys up nicely with this story, that I didnt see on here:

http://www.telegraph.co.uk/finance/personalfinance/tax/11671098/Taxman-pays-record-600000-to-informants.html

"

Taxman pays record £600,000 to informants Embittered ex-wives, husbands and former work colleagues are believed to be the most common tax whistleblowers"

"A reward of between £50 and £1,000 is often given" ( A reward, a tax rebate more like ).

Fill your boots....

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These days a btl is a status symbol like a sports car is. Just to show off you have the money.

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These days a btl is a status symbol like a sports car is. Just to show off you have the money.

Absolutely and especially in this instance.

"look how expensive houses are and I've got 2, 3...'

Edited by longtomsilver

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Getting back to the O.P.'s neighbour... by his own admission he's incapable of organising his own finances and is 'terrible with money' yet he somehow stumbles into the job of being Operations Director for a national PLC... how do these people get these positions??

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Getting back to the O.P.'s neighbour... by his own admission he's incapable of organising his own finances and is 'terrible with money' yet he somehow stumbles into the job of being Operations Director for a national PLC... how do these people get these positions??

To some degree I agree with you. At the same time many people apply logic and competence at work and then switch off and let it all hang out after work.

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bonkers in the main

except for this part "They also have no savings, are terrible with money by their own admission in spite of being in the top 2%."

So, maybe, by putting £150k out of reach, it is a good way of "saving" for them.

No matter how terrible they are with money, I expect they will pay their mortgage payments on time. Even if they lose £50k on the purchase, they will still have £100k and some rental income. They could have mewed the money and spent it on a caravan, a cruise, a big telly and some other shiny baubles and have nothing to show for it....

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More to do with the "confidence of ignorance". The seeming certainty of someone who does not understand and see pitfalls and ploughs on confidently.

Works a treat in the workplace where most people cannot tell the difference between 'good' and 'bad' and therefore use visual clues to help assess people. Being outgoing and confident is one of those overrated visual clues.

Hence why there is no difference in the core person between work and home.

A very fair point.

Additionally the reason why we resort to markets in order to impose discipline on organisations, because the people running them don't do it themselves.

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bonkers in the main

except for this part "They also have no savings, are terrible with money by their own admission in spite of being in the top 2%."

So, maybe, by putting £150k out of reach, it is a good way of "saving" for them.

No matter how terrible they are with money, I expect they will pay their mortgage payments on time. Even if they lose £50k on the purchase, they will still have £100k and some rental income. They could have mewed the money and spent it on a caravan, a cruise, a big telly and some other shiny baubles and have nothing to show for it....

+1

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Getting back to the O.P.'s neighbour... by his own admission he's incapable of organising his own finances and is 'terrible with money' yet he somehow stumbles into the job of being Operations Director for a national PLC... how do these people get these positions??

He is exceedingly ordinary. I know his route to the BoD and it was very much a case of who you know and not what you know.

I had a meal out with the wife and her MD not long after she started there and he was trying to persuade her to opt out of the company pension. He could not understand that sacrificing 1.5% of net salary for 7.5% (2.5% matched my co. 5%) contribution was a fantastic deal. Instead retorted that he was making provisions elsewhere. Again FMCG Plc. Some people can't see the wood for the trees no matter who or where they are.

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People promote those that recognise entitlement as a virtue.

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To some degree I agree with you. At the same time many people apply logic and competence at work and then switch off and let it all hang out after work.

Well that's robably where I'm going wrong then, because, if anything, I tend to be the other way round!

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To some degree I agree with you. At the same time many people apply logic and competence at work and then switch off and let it all hang out after work.

And some are related to the owner, or have a nice t1t/ar5e - choose one or two.

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These days a btl is a status symbol like a sports car is. Just to show off you have the money.

As long as your cash if you aint and you have borrowed you are just another twit with huge debt,like anybody driving a 10 plate onwards beema merc etc 99% of the time its lease or company car

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bonkers in the main

except for this part "They also have no savings, are terrible with money by their own admission in spite of being in the top 2%."

So, maybe, by putting £150k out of reach, it is a good way of "saving" for them.

No matter how terrible they are with money, I expect they will pay their mortgage payments on time. Even if they lose £50k on the purchase, they will still have £100k and some rental income. They could have mewed the money and spent it on a caravan, a cruise, a big telly and some other shiny baubles and have nothing to show for it....

Unless I've misunderstood the OP, the source of the buy-to-let deposit is a draw down on the mortgage on the main home, hence the buy-to-let deposit has been financed with new debt (but very cheap debt because of the current very low rates available at low/low-ish LTVs). The balance of financing will be more debt, though slightly more expensive, in the form of a buy-to-let mortgage, (very possibly interest only).

There isn't a penny of saving going on here.

In fact, as the buy-to-let property may fail to wash its face, the investment may have a carry cost and as a result the buy-to-let investment may turn out to be another way in which they fritter away the income earned from employment.

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A very successful* neighbour

* Operations Director for a listed multinational PLC we've all heard of.

For the most part, Ops Directors aren't directors in the fiduciary sense (members of the board, signing off on accounts etc). They are usually 'functional experts' who are good at streamlining processes, managing supply chains and driving cost out of businesses. £100K, £120K tops. Clearing £70-90K after tax. Not necessarily great business brains (those that have usually go out on their own before they get to that level).

After 'lifestyle inflation', I can understand why they're banking f*** all, esp if there's kids at the 'expensive' stage (horse riding, school trips).

Based purely on my own experience as MD of a FMCG business.

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