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Nice Case Study Illustrating Pressure On Property Hoarding

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Haven't seen this one on the forum so sorry if I've missed it.

Telegraph case study - young guy on good money in London, owns a flat in Southampton which he rented out when he moved up to London. Renting in London but trying to work out whether he can buy anywhere while keeping the first flat.

"Mr Hayes wants to know how to make the best of the property he owns [in Southampton] so he can buy a flat in London.

However, he is faced with the dilemma of whether to overpay the mortgage or to save towards a deposit. He is also wondering whether setting up a company may reduce the amount he pays in tax.

Ideally, he’d like to hang onto the Southampton flat as “future investment" which he estimates is currently worth between £160,000 and £170,000. He has let it out since February 2016 and his tenant pays £900 per month. This covers his monthly mortgage repayments of £535. He has £100,000 left to repay at 4.19pc and two years remaining. A £5,000 early exit fee applies."

The experts can't bring themselves to state the bleeding obvious i.e. "Sell your flat", but it's worth a read of what they say to see it gradually sinking in that the new rules make holding on to that "investment property" less attractive.

Link: http://www.telegraph.co.uk/personal-banking/mortgages/im-29-and-on-66k-how-do-i-make-the-most-of-my-let-flat-so-i-can/

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His lack of savings (3k) earning so much and making a profit each month on his BTL doesn't make sense, given his salary and expenses outlined in the article.

Also mentioned he can borrow 300k + 50k inheritance (assuming she dies in 2 years) and where will the rest come from, especially as he will pay 20k in stamp duty. Also 400k wont buy him the kind of thing he wants in 2 years, unless he lives in proper east London like Romford which I cant imagine appealing.

Think the obvious choice as you say is to sell the flat, that gives him 70k (maybe 100k+ in 2 years) and he saves on the tax bills.

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I have not even read the article because I see from the comments that this parasite is banking on someone's death to fund his greedy schemes. Don't want to raise my blood pressure by learning more. Just hoping it all goes down the pan for him.

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If it were me I'd be inclined to hang on for 2 more years to avoid paying that five grand ouch.

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Seems like he had a mortgage for 110k 10.5 years ago and now owes 100k... Hmmm... that can't be right??? Or at least it can't have been a standard 25 year re-payment mortgage!

The phrase "Cut your coat accoutring to your cloth" springs to mind!

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Sell his flat? What sort of advice would that be? He can get some worker in there paying his mortgage.

If he sold it, he'd be some kind of one-home owning peasant. He should ideally buy 20 more.

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Is this guy some sort of novice? Step one he got bang on, buy a place, move city, just rent it out.

Step two has to involve buying another place, obviously, before he can move on again and just rent that out too. Guy is getting far too ahead of himself, attend to the matter in hand, buy another place (ideally a couple of places) then move on again - move cities if you have to, just so long as you move, this part is critical - because your moving CREATES another investment property for you to rent out, innit.

Ideally you are never renting yourself but this doesn't matter as long as you have mortgages on the places you DON'T live in, and are simply renting them out, this ENSURES your financial prosperity and your retirement.

I can't fathom how this chap has got stuck on step one, started so well, moved house, just rented out old house like a pro, then BAM he's stuck in some sort of limbo with only one rental to his name.

Buy-move-rent(innit)

repeat until wealth level infinite.

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Always been my problem. I stay in one place far to long! Buy (oh, and I never did this either!) - Move - and just increase that rent whenever you need some extra cash, innit. Total amateur, 2 years saving, pah, what real BTL'er needs that! :P

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What else can the BTLegraph, recommend for an investment apart from a BTL, saving is worth nothing ZIRP to infinity, and we have HPI to infinity.

Blame the banksters and the politician scumbags.

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Well he can't buy again, keeping his investment property, without incurring higher stamp duty for BTLers and second/third-homeowners. He could go company route but looking like serious hassle for the HPI/BTLer standard mindset, and higher costs - even if some headline rates (which I reckon would turn out to be more expensive on application) have some observers suggesting it's still feasible.

If he wants a pension, do something productive, rather than people farm and quest forever HPI. Give someone else a chance at homeownership. Also sell before a neighbour accepts a lower offer. Or a panicking BTLer across the road accepts lower offer, bringing values down - otherwise don't complain if your investment property goes down in value.

And make sure you know all the latest rules of being a landlord - including how you can't serve notice on new tenancy for 4 months, and tenant has more power to force repairs in that time, and if not to the tenants satisfaction, can be very difficult to serve S21.

Individuals who would normally sell up, but who hold onto properties to let out instead, prevent the market from clearing and proper price discovery from occurring - thus significantly contributing to any problems attributable to high house prices - so it really depends on whether they would be inclined to sell into continued use by somebody else if they decided not to rent it out. Additionally, amateurs clearly often don't think that tenants should have any decent security of tenure and don't familiarise themselves with even current legislation so they obviously do undermine your legitimate concerns above. I don't really see how my argument is any more moralising than asserting, by implication, that amateur landlords generally aren't doing anything wrong and generally are doing a broadly good thing. All I am saying is that if they have no idea about the legal realities of what they have chosen to do of their own free will then that is also a choice on their part. They could have educated themselves. They didn't. They don't like the consequences of that. Oh well.

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Well he can't buy again, keeping his investment property, without incurring higher stamp duty for BTLers and second/third-homeowners. He could go company route but looking like serious hassle for the HPI/BTLer standard mindset, and higher costs - even if some headline rates (which I reckon would turn out to be more expensive on application) have some observers suggesting it's still feasible.

If he wants a pension, do something productive, rather than people farm and quest forever HPI. Give someone else a chance at homeownership. Also sell before a neighbour accepts a lower offer. Or a panicking BTLer across the road accepts lower offer, bringing values down - otherwise don't complain if your investment property goes down in value.

And make sure you know all the latest rules of being a landlord - including how you can't serve notice on new tenancy for 4 months, and tenant has more power to force repairs in that time, and if not to the tenants satisfaction, can be very difficult to serve S21.

Eh?

3% stamp duty on a say £400k flat = £12k

£12k over say 25 year IO mortgage = ~£500p/a

£500 / 12 months = ~£40 quid a month

Rent just needs to go up £40 a month to make it stack up, big deal a whole whopping £40 some scumbag renter is going to have to find. What else is he expected to do with the #tenanttax, pay it himself?

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He has to find the extra lump upfront though. :)

Although I know you're doing your thing above, tee-hee - I like it. :)

£40 a month is pretty weighty in this economy for many tenants - as I suspect you agree.

BTLers costs are not tenants costs. He could wait for lower prices (see Stamp Duty below), but he'll always have to pay the extra on SDLT vs price FTBs or upsizers.

Landlords charge the max they can, 'market' rents. If council tax was increased and the tenant had to pay more, rents would have to reduce by a commensurate amount to maintain that max value. i.e. net cashflows are the same, but either rents or prices would fall. It's the same as with SDLT - technically paid by the buyer, economically worn by the seller. A landlord can try and a tenant can just say no thanks. Housing supply is inelastic, housing demand isn't. The price of housing services (rents) are therefore almost entirely a function of demand (affordability). Land or house prices amount to the NPV of equivalent future rents accruing to them, so a higher tax impacts future cashflows determining today's value, lowering it. All else being equal they cannot be passed on as additional costs to tenants because the tax is worn by inelastic immovable supply and not more price sensitive (net wages) demand. Whether it impacts the landlord is not relevant while rent > costs and if it becomes relevant that's a Government taxes and not a tenant issue.

If you think that's wrong then why do landords or sellers rent or sell at the prices they do today, and not higher? Or alternatively who bears the liability if tenants just move or opt to buy in the event that a new net tax + rent is more expensive?

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He could move into it as his main resisdence, saving his 3%, then after a few months, move in with his folks (or buy another place), and just rent it out innit.

Simples.

Edited by GreenDevil

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He could move into it as his main resisdence, saving his 3%, then after a few months, move in with his folks (or buy another place), and just rent it out innit.

Simples.

He can't save the 3% stamp duty while he still owns his first flat.

However, as Funn3r pointed out he's going to get stiffed for five grand if he sells the flat in the next two years because of the early redemption penalty on his fixed mortgage.

Loss aversion and cost minimisation suggests he'll hang on to the flat for two years then sell it to buy in London.

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He can't save the 3% stamp duty while he still owns his first flat.

However, as Funn3r pointed out he's going to get stiffed for five grand if he sells the flat in the next two years because of the early redemption penalty on his fixed mortgage.

Loss aversion and cost minimisation suggests he'll hang on to the flat for two years then sell it to buy in London.

OR, as pointed out above, he'll pass his increased costs on to his customers like ALL BUSINESSES do.

Mister Osbourne needs to wake up and smell the coffee and realise that landlords, like all good business people, are running a tight ship and increased cost has to = increased turnover by RAISING PRICES. You don't need to be Sir Alan Sugar (Stir Alan I call him) to realise that once again the poor old customer (ie in this case the scum tenant) bears the brunt of increased prices.

Simple supply and demand, innit.

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Sold the two BLTs bought in 2001 ( down payment from Mewing) in 2015 and payed off mortgage on the family house, bought a Porsche Cayman cash the rest is for wasting...INIT

Edited by Nerd

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