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marko

Renting - Personal Experience

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Hi all,

Marko back again for a short visit...I just wanted to share with everyone my personal experience with renting. I have for the last eight months been lodging for £50 a week all in (internet, Sky) very satisfactorily. However, my girlfriend is now coming over from Holland to live with me so we have just rented a two bed flat in Hertfordshire.

It was on for £800 pcm (bloody expensive of course, but it is a very nice, big flat, all-new kitchen blah blah) and I offered £750, which was immediately accepted! Sh!t thinks I, I should have offered less. But anyway, never mind. Incidently I took my time over this decision, looking at lots of flats...can't say they have been moving very quickly: the one I rented was on the market for at least three months.

I have looked at the sale price of an identical flat in the same development....£210k. This means that the landlord of my flat is making a monstrous 4.3% yield. A BTL 'investor' could get a better yield shoving their money into a zero-risk savings account...and this is BEFORE considering the effect of transaction costs, maintenance, vacancy etc. etc.

Could TTRTR or anyone else with a bullish disposition towards the housing market please explain to me WHY anyone with a modicum of financial nouse would consider BTL as an investment in the current market where prices are stagnating AT BEST?

For those BTL people who bought a few years ago and therefore paid substantially less on their properties, they are getting a decent return on the money they spent...but they are NOT getting anything like a decent return on the value of their asset...if they were rational financially savvy investors, they would liquidate their property portfolio (taking into account transaction costs of course) and get into something with better returns (shares for example)....WHY CAN BULLS NOT SEE THIS???

Actually I think I understand the reason why...ever since the dotcom bubble, amateur investors tend to consider capital growth almost exclusively, rather than the yield associated with a particular asset. Dotcom shares were being traded at silly prices despite the UTTER absence of dividends!!....it was a purely speculative game based on the belief that the shares could be flogged off to someone else later for more money. Dividends were ignored in the 'valuations' of these shares.

It is the same with the HP bubble - proponents of BTL are betting on rising asset prices to justify their 'investment' decision...take this away (and I think it is bloody obvious now that it HAS been taken away), and what are you left with? A nugatory 4% rental yield on your money BEFORE transaction, maintenance, vacancy etc. etc.

Excuse me if I don't get wet about this 'investment opportunity'. <_<

BTL bulls....even with the at best stagnation in the market (rose-tinted optimism in my view), BTL is an idiots investment. This is not open to debate or refutable...it is a simple fact. I can only assume that Bulls either (a) really believe prices will carry on upwards) or (B) are sh!tting themselves and want to convince themselves and others that this ponzi scheme of a housing market isn't about to go POP.

I now intend to sit back and watch the unfolding mess from my rented flat...I think I will also be a rental tart over the next few years....see how much rent I can shave off desperate BTL landlords in the coming couple of years.....

'renting is dead money' - only the financially illiterate believe this...

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It obviously depends on what they actually paid versus what they think its worth.....that is what determines the actual yield. You can't dismiss high prices then honestly use them in your yield calculations... :blink:

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I guess another factor many BTLers take into account is CGT.

The longer they hang on to their investment the lower the amount of CGT they will be liable for.

When looking at the 'value' of a BTL flat they probably look at what they paid for it, versus what they would get for it after tax if they sold now, versus what they would get if they sold in ten years time, versus the income stream from rent.

I'm a bear, but I can imagine that if I was a landlord I might hang on to the property once it was bought just to avoid paying taxes.

Of course, once I got to the point where I was subsidising my tenants I might reconsider....

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It obviously depends on what they actually paid versus what they think its worth.....that is what determines the actual yield

You seem to be as financially astute as most BTLs.

Let's suppose I bought a house in 1965 for 1500 pounds. Today it's 'worth' 300,000 pounds, and I rent it out for 1500 pounds a year... wow, by your argument that's a 100% yield, whereas if I sold the place and put the 300k in the bank I'd only get a 5% yield.

Except, duh, that 5% yield on 300k would be ten times as much as your 100% yield on 1.5k.

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Guest magnoliawalls

I guess another factor many BTLers take into account is CGT.

The longer they hang on to their investment the lower the amount of CGT they will be liable for.

When looking at the 'value' of a BTL flat they probably look at what they paid for it, versus what they would get for it after tax if they sold now, versus what they would get if they sold in ten years time, versus the income stream from rent.

I'm a bear, but I can imagine that if I was a landlord I might hang on to the property once it was bought just to avoid paying taxes.

That just highlights how taxes distort the market - there must be many landlords in that position and it would reduce the probability of sharp falls.

:(

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My argument still stands, its only IF you could get 300K for it....maybe its you who are being a bit blinkered...The problem with too many people on here when they bash BTL's is that they want to use the most disadvantageous figures. there is no need the real figures are bad enough in many BTL cases ;)The reality is that the real yield is what they get versus what they paid. What its potentially worth etc is just hot air.

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The reality is that the real yield is what they get versus what they paid.

So you'd be happy renting out a 300k house for 120 pounds a month?

The reality is that anyone who gauges yield based on original cost rather than current value is a fool. But that's a good thing, because otherwise we wouldn't be able to rent nice places so cheaply.

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So you'd be happy renting out a 300k house for 120 pounds a month?

The reality is that anyone who gauges yield based on original cost rather than current value is a fool. But that's a good thing, because otherwise we wouldn't be able to rent nice places so cheaply.

I'm not saying that is what you would/should do in real life. However its certainly not sensible for you or anyone else to base BTL yields on valuation figures that in other posts are said to be fantasy.....I'm suggesting some reason in the arguments, you just want to paint it as black as possible. I believe over egging the pudding is the phrase.

If I bought a house 5 years ago for 100K and am today renting it for 10K PA its a good investment even without the capital gains. If I choose to take the capital gain and re-invest it then of course I'm working with a higher capital base but if I were being sensible I wouldn't count on it being top whack

Again of course you choose to ignore the potential capital gain factor in any yield calculation. Be a bit more open minded :blink:

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Again of course you choose to ignore the potential capital gain factor in any yield calculation.

Um, but you've just been telling us to ignore capital gains in yield calculations... yield should be based solely on what you paid, not the current inflated price.

As for buying a 100k house five years ago, that probably would be 'worth' 300k today. So a 10k annual return on that house would be laughable (wouldn't even have been great then)... you'd have made far more money selling it before the crash started and sticking the money in the stock market.

But, as I said, when you're renting it's good that most landlords are so 'financially special'.

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That just highlights how taxes distort the market - there must be many landlords in that position and it would reduce the probability of sharp falls.

:(

Not sure I agree with this, most people tend to take the business decision first and work out the tax consequences later.

Taper relief is not very generous on non-business assets so I don't think sensible people would hold onto the asset for this purpose.

In any event CGT is not payable if you loose money in the first place.

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CGT is really only relevant for BTLers that got in early in this bubble.

You only pay CGT on gains... thats why its called capital gains tax.

If you make a loss (due to HPC) then you won't have any gains to be taxed.

Rent is income and not subject to CGT (but is subject to income tax).

I suspect that many BTLers won't be having to worry about CGT being a barrier to liquidating their portfolios for very much longer (especially if they bought a 2 bed cardboard box type flat). :lol::lol::lol:

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Um, but you've just been telling us to ignore capital gains in yield calculations... yield should be based solely on what you paid, not the current inflated price.

As for buying a 100k house five years ago, that probably would be 'worth' 300k today. So a 10k annual return on that house would be laughable (wouldn't even have been great then)... you'd have made far more money selling it before the crash started and sticking the money in the stock market.

But, as I said, when you're renting it's good that most landlords are so 'financially special'.

What i said was that you cannot use over inflated cost estimates to calculate the yield.....or do you not agree ?

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What i said was that you cannot use over inflated cost estimates to calculate the yield.....or do you not agree ?

Essentially what your saying is how do you value a house as we all know EA valuations are pinning the tail on the donkey. And yes people on here do go for the worst 'stats' to highlight their point. i.e. EA valuation is 500,000 when in reality if it was put to market and sold would probably only get £400,000.

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Guest magnoliawalls

Not sure I agree with this, most people tend to take the business decision first and work out the tax consequences later.

Taper relief is not very generous on non-business assets so I don't think sensible people would hold onto the asset for this purpose.

In any event CGT is not payable if you loose money in the first place.

Fair point but I still more or less agree with rockdoctor that:

When looking at the 'value' of a BTL flat they probably look at what they paid for it, versus what they would get for it after tax if they sold now, versus what they would get if they sold in ten years time, versus the income stream from rent.

Ignoring tapered relief - surely it makes more sense to consider the opportunity cost of keeping their money in BTL in terms of the likely returns on the after tax capital? The difference of including the CGT, or not including it might well be significant for those who were lucky enough to buy before the bubble.

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Same house next door to us went for 210K June 2004, one across the road from the one we are renting went for 235K in July 2005. The rental yield on the lastest like for like sale valuation would be 2.936% After known one month void this year and 10% agents fees the yield is 2.425%. It has been owned by the landlord for around nine years, but has recently had much maintenance and repair outgoings, plus carpet and kitchen appliances renewals.

The rent is reasonable, however it is not far out from "tops" what is being achieved like for like in the area. This in it's self points to current valuations being toppy to say the least. Projecting forward two or three years there is much apartment building scheduled for the area. OK he is probably doing alright regards return on money actually invested, but it has an achievable sale valuation far in excess of what he paid for it. Investments have to be cashed in sometime, and now looks as good a time as any to me. I must say in all honesty if it was mine I'd flog it, but I would say that wouldn't I :rolleyes:

Edited by Catch22

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What i said was that you cannot use over inflated cost estimates to calculate the yield.....or do you not agree ?

ummm...if you have just paid that much money for the property, then of course!

However I concede the point that realisable values are what should be used to calculate yield...these may be considerably less than the silly asking prices we see on the market at the moment.

But think about it: TTRTR and other bull(sh!tter)s argue that BTL is still a goer because property prices are not going down: they never mention the yield on their investments because it is SH!TE...They are completely focused on capital growth....but now capital growth has stalled (and is about to go into reverse), they are screwed. TTRTR and others can't have it both ways: if they believe current property valuations are reasonable, then they MUST conceed that rental yields are a pile o' sh1te. If they STILL believe property prices will climb, then they must conceed that rental yields will become an even bigger pile o'shite.....at the end of the day, asset value is determined by yield: the refusal to recognise this truism is what marks out a property bull as an irrational investor, clinging to the bubble. The fundamental value is not there in the property market...

...it is, as we all know, a bubble, driven by a mixture of media influence, naughty EAs, stupidity, fear, greed, cultural predispositions etc....but not driven by rational asset valuations.

My original point to the post was that BTL is currently a stupid investment decision: if someone is buying a flat NOW in order to BTL, then they are probably making a big mistake. But you should also realise that those who bought 5 years ago should also think about moving into something else - i.e. realise the inflated valuations that their properties have and plough the proceeds into a more lucrative asset. (subject to CGT, transaction costs etc of course).

Edited by marko

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Having done the maths based on some property prices and rents in Bristol, even if bought at today's prices, and with no HPI, a BTL works out about the same as a savings account as far as returns go.

Nevertheless, a savings account is currently far less risky. At the right time, of course, a BTL can be a great investment, but not at the moment.

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The house I am renting would be getting 4.1% yield based on its asset price!

I can beat that.

The beautiful house that I rent returns a 2.8% yield to the landlord. Because he bought it 45 years ago however he is very happy with this yield. To quote him 'It's mortgage free and it's only worth a multiple of the yield, and in this case the yield is fair for the real value of the property - current property valuations are coming from the other side of Mars'

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Most BTL landlords (especially the Johnny come lately amateurs) that have been sucked into the recent bull market, (which ended 2 years ago in the south and 1 year ago up north) only entered the market for capital gain. They are unsophisticated investors. With the recent high cost of property the sheer size of loans required to get into the BTL market increased the risk massively.

The recent prices being paid means that the operating income (rent) generated from the asset is in many cases insufficient to cover the ownership cost of the asset (let alone the operating costs). Therefore whilst prices were still rising the landlord could comfort themselves that although making an operating loss, they were making a capital gain. When prices stopped going up this turned in to a real operating loss. Now that prices are falling, they are faced with a depreciating asset a big loan to service and an operational loss, a real triple whammy.

Even if interest go down to 4% this year (which would be a disaster for this countries economy) it will not change what is about to happen. IMHO it will be just as bad as last time. I can’t believe we’ve come to this state, but memories are short and greed generally overcomes fear. It’s certainly going to be messy.

The only bounce we’re going to see this spring is a ‘dead cat bounce’ as BTL investors compete to throw themselves off the top of ‘Off plan, high rise executive city centre follies’, they’ve bought into and can’t liquidate quickly enough.

For the record I’m by inclination a Bull turned fully paid up member of the Bear Jamboree.

Pablo Silver or Lead?

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  • 301 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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