Countdown to leveraged BTL going bust thread

[CunningPlan]

1 minute ago, RushRoad said:

 

Projecting silly prejudices does no one any good

Which part of what I said was a prejudice and which part was silly?

I am guessing you are not in the SE?

[19 year mortgage 8itch]

4 minutes ago, CunningPlan said:

Which part of what I said was a prejudice and which part was silly?

prejudice - that BTL landlords are law abiding citizens that pay their taxes

silly- that BTL landlords have accountants

[RushRoad]

3 minutes ago, CunningPlan said:

Which part of what I said was a prejudice and which part was silly?

I am guessing you are not in the SE?

 

You typed the following

Quote

Maximum leveraged landlords will not have done much more than break even over the last few years. Paying tax will be a shock. Listening to their accountant will be a very strange event indeed.

That is prejudice, preconceived opinion that is not based on reason or actual experience.

Who has an accountant and does not listen to them? Leveraged landlords, even the typical maximum of 75% will have done more than break even as very often their mortgage will be half of their rent so they have had positive cash flow. Depending on location some have had capital gains too (England and Wales average price from Jan 2016-Jan2017 is up £12,000 according to Land Reg Figures) 

I know its popular to caricature Landlords and thats fine if done in jest but it seems many on this forum have been doing it so long with so little actual contact or understanding that they think their caricatures are reality

 

[CunningPlan]

7 minutes ago, RushRoad said:

 

You typed the following

That is prejudice, preconceived opinion that is not based on reason or actual experience.

Who has an accountant and does not listen to them? Leveraged landlords, even the typical maximum of 75% will have done more than break even as very often their mortgage will be half of their rent so they have had positive cash flow. Depending on location some have had capital gains too (England and Wales average price from Jan 2016-Jan2017 is up £12,000 according to Land Reg Figures) 

I know its popular to caricature Landlords and thats fine if done in jest but it seems many on this forum have been doing it so long with so little actual contact or understanding that they think their caricatures are reality

 

Trust me my opinion is based on both fact and experience.

I was an accountant and for a long time have been in business. I understand return on capital employed.

If you had £1.5m to invest, what return would you want for a medium to high risk investment?

 

[RushRoad]

1 minute ago, CunningPlan said:

Trust me my opinion is based on both fact and experience.

I was an accountant and for a long time have been in business. I understand return on capital employed.

If you had £1.5m to invest, what return would you want for a medium to high risk investment?

 

 

It depends what you mean by medium to high risk

Real return probably 5+ %

By medium to high risk I would think of something like putting the whole lot on just five FTSE100 shares

[Venger]

10 minutes ago, RushRoad said:

You typed the following

That is prejudice, preconceived opinion that is not based on reason or actual experience.

Who has an accountant and does not listen to them? Leveraged landlords, even the typical maximum of 75% will have done more than break even as very often their mortgage will be half of their rent so they have had positive cash flow. Depending on location some have had capital gains too (England and Wales average price from Jan 2016-Jan2017 is up £12,000 according to Land Reg Figures) 

I know its popular to caricature Landlords and thats fine if done in jest but it seems many on this forum have been doing it so long with so little actual contact or understanding that they think their caricatures are reality

Everything changes for so many BTLers with Section 24 perfection beautiful policy.

The accountant will have to work (and so many BTLers will need to get an accountant because of the complexity), and suddenly we're going to have BTLers who find they don't have £0 tax to pay on a £300,000 rent roll.

Into the mincer the BTLers go.  

We already know about your uncertainty ("should I sell") and your marginal tax rate on some properties... yippee!   S24 Pincer CGT.  You're not the only BTLer but you've got your property 'units'.  

Quote

 

SCENARIO AS OF TODAY

Rental income: £300,000 per annum

Mortgage interest: £200,000

Other legitimate expenses: £100,000 (e.g. insurance, letting, management, maintenance etc.)

Taxable income = zero.

SAME SCENARIO AS OF 2020

Rental income: £300,000 per annum

Legitimate expenses excluding interest: £100,000

Net taxable income = £200,000

Net cashflow is still zero but tax is payable on £200,000 less a tax credit of £40,000 due to the 20% relief on the £200,000 of mortgage interest.

Given that net cashflow is zero, where is the landlord expected to find the money to pay the extra tax from?

The position worsens when interest rates increase.

It gets worse!

Until now, buy-to-let mortgage underwriting and associated lending criteria has been based on the current tax system,  which has not made provision for this extra tax. Many thousands of established professional landlords have based their business models on the current tax system and lending criteria. If these landlords are now allowed to fail we could be looking at another credit crisis, plus of course a further negative impact on the housing crisis..

 

 

Quote

In answer to your question, I am facing financial oblivion.   To make things worse, earlier this year I refinanced onto 10 year fixed rates to hedge against interest rate rises. The early redemption charges are 5%.  Historically, I invested all of my spare money into my property portfolio. I also leveraged highly to expand my rental property business and increased my gearing even further in 2008.   I cannot sell my property portfolio because the net sale proceeds will be insufficient to repay the mortgages and also cover the CGT, sale costs and ERC’s on the mortgages. The income tax payable under the chancellors proposals will also render me insolvent eventually. Whilst I have made provisions for interest rate rises, my bankruptcy is inevitable if the Chancellors proposals proceed as planned. I am trapped. My properties will be repossessed and my tenants will be forced to relocate in a market which will see the availability of rental property reducing. A significant element of the PRS (landlords and tenants) face the same inevitability. The social consequences are unthinkable.

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On 7/27/2015 at 8:44 PM, dgul said:

An interesting part of the new tax rules for mortgages is that it will make it 'more difficult' for landlords to get away with under paying tax - at the moment you don't have to fill in a tax return if your additional income is under £2500. There is a 'you must contact your tax office' if you have extra income under £2500 but it is clear that you don't have to fill in a tax return (the important bit). But under the new rules you can't deduct interest from your rental income so just about all landlords will have to fill in a tax return - and if they don't that in itself is an offence punishable through fines, etc.

So - all landlords must fill in a tax return (from 2017).

In that tax return they'll have to declare their income and costs from letting.

The HMRC will be able to work out what the tax position should have been for previous years.

 

On 7/27/2015 at 10:07 PM, dgul said:

But at the moment they can't assume that a person who might be a landlord has to fill in a tax return.

In the future they can assume that they must.

They might just send out 1 million (1.4m landlords, 1m registered with hmrc) penalty fines for not filling in a tax return. Easy £100 million.

And they get the tax later...

 

On 7/9/2015 at 8:29 PM, lastlaugh said:

I find it interesting that mortgage interest was never actually a deductible expense, it just appeared to work that way in practice.

We know there are a substantial number of BTLers who don't declare their rental income for tax. I have a hunch it's because they think they have set up their "business" in such a way as to not generate a profit, so there is nothing to declare.

The thing is, rental income and mortgage interest relief are two separate things and one never could be used to offset the other. The only way it could be done was through the tax return. So there is a potential legion of BTLers who never never filed a return, but should have, and could have, and would have been left in the same tax position anyway.

They will now have to claim the tax relief legitimately through tax returns. Their problem now will be, how do they get from outside the HMRC net, to inside, without exposing years of tax fraud?

 

On 7/11/2015 at 4:14 PM, Bland Unsight said:

OMG! Sorry I missed this. This is a really excellent point and picks up on Greg Bowman's point about HMRC and big data.

The idea of missing landlords idea has been bounced around the boards; I've never really looked into it, but I'm sure there's something to it. The mechanism must be that they fail to record their rental income on the self-assessment form at all. Another poster pointed out that the changes will motivate HMRC to find the missing landlords as now there is a very good chance that in due course money will be due.

Also worth pointing out that it will be a motivation for landlords who've been defrauding the Exchequer by not reporting income to bail at the earliest opportunity in order to avoid their accounts being looked into.

For example, if I was running the HMRC then in 2017 if my big data project directed me to some herbert who's had a BTL mortgage for 15 years and is suddenly showing a tax liability on a self-assessment form for the first time, I'd probably allocate some resources to working their file...

This thing just gets better and better and better.

"Sell now, sell everything."

 

On 7/26/2015 at 11:32 AM, spyguy said:

Yes. If you're scamming - not declaring, claiming for stuff - it over a number of years, the tax avoided will exceed 4k.

They'll want that back plus interest.

Some of the smaller stuff is done as a means of training up junior revenue employees.

Think to the Jurassic World film, where a T rex bites a blokes leg and then lets her T-rex babies hunt + tear him to bits.

 

[CunningPlan]

So you would agree that my LL getting <3% means that in reality he is making a loss on his capital?

[RushRoad]

Venger your scenarios are too pessimistic and too unrealistic

Most Landlords are not highly geared but even those that are currently they have good cash flow (post tax profit) as interest rates are low and even post S24 most will not go into negative territory and that assumes both static rents for 4 years and static interest rates

PS I admit what I have just said might not be true for the biggest Landlords as I assume as you own more and more you actually will pay more interest because most the competitive lenders and deals have caps on the number of properties or the total debt. However that is just a pure guess for all I know maybe the Landlords with hundreds have special sweetheart deals but I dont think so.

[RushRoad]

5 minutes ago, CunningPlan said:

So you would agree that my LL getting <3% means that in reality he is making a loss on his capital?

 

I would not buy a <3% yield property, most landlords would not

At the same time you can not write off the whole property market due to one subset of one subset (I assume Z1/2 London) has really low rental yields. I am not in the north but on other forums they post that they can get near 10% which to my southern self looks a good deal for something that is likely to be an inflation linked income.

Also I think given the reality which is probably closer to the following

4% dividend FTSE 100

6% yield BTL

1% interest bank account

Most people landlord or not would probably be attracted to the 6% rather than the 4 or 1 percent and they would likely have more confidence in paying £150k for a outright BTL rather than £150k in a FTSE Tracker or worse yet (fear may be irrational but its fear for the public none the less) a fund manager!

[Venger]

4 minutes ago, RushRoad said:

Venger your scenarios are too pessimistic and too unrealistic

Most Landlords are not highly geared but even those that are currently they have good cash flow (post tax profit) as interest rates are low and even post S24 most will not go into negative territory and that assumes both static rents for 4 years and static interest rates

PS I admit what I have just said might not be true for the biggest Landlords as I assume as you own more and more you actually will pay more interest because most the competitive lenders and deals have caps on the number of properties or the total debt. However that is just a pure guess for all I know maybe the Landlords with hundreds have special sweetheart deals but I dont think so.

Those opening 2 posts are from an actual BTLer in 2015, in shock about Section24 and letter writing to authorities to try and get S24 overturned.

Values are found at the margin so let's find out.

You're posting about your 'ridiculous marginal tax rate' now.

If you own a property worth £500,000 then it's not going to be worth £500,000 if near identical property next door sells for £375K in 2018/19, from a BTLer bailing out... followed by a near identical property across the street selling at £325,000.   Those lower prices in active market would bring down values of surrounding property.  That's a market.  It's why I reject your 8% more sellers as any measure of limited affect for house prices.  Real estate runs on money.

House price rose because buyers and sellers (in the active market) agreed to pay higher prices.   Individual transactions each month.   And lifting all surrounding properties in HPI+++ areas because values found at the margin.  

Similarly values drop when just a few sellers and buyers agree to transact at lower the previous prices.  It doesn't take everyone's action to increase/decrease prices, just their inaction.  A few buyers and sellers made it happen (value change).

[CunningPlan]

Wrong. Surrey. 6% yield is dreamland. Add in the odd month's void and repairs / redecorating and 3% based on current value is probably close to the norm.

That is not an investment. It is an hpi gamble. If prices go up, I lose, if they go down, my LL loses. 

Except I only lose opportunity. He loses his shirt.

 

 

[RushRoad]

17 minutes ago, CunningPlan said:

Wrong. Surrey. 6% yield is dreamland. Add in the odd month's void and repairs / redecorating and 3% based on current value is probably close to the norm.

That is not an investment. It is an hpi gamble. If prices go up, I lose, if they go down, my LL loses. 

Except I only lose opportunity. He loses his shirt.

 

 

 

Voids are another mistake I often see here people post a generic oh voids of 10% per year

In my time I have never had a year with more than 1% voids

Of course I accept that there may be regional differences and what its like here in London might not be anything like what it is in the north, Im not saying its worse there I assume it is but I just dont know but here in London you are doing something very wrong if you have 10% voids

[Bland Unsight]

6 minutes ago, RushRoad said:

In my time I have never had a year with more than 1% voids

Same old anecdotal to general BS.

Having signature cognitive errors after less than a week on the forum is an achievement. Chapeau!

[Gush]

7 hours ago, RushRoad said:

4% dividend FTSE 100

6% yield BTL

1% interest bank account

You have come here to educate us with a simple multiple choice question, just when S24 has started, thanks for your time.

Here is mine

1% appreciation of capital with no risk.

4% appreciation where the 100% capital risk

6% appreciation where the capital risk is not limited to 100%.

[spyguy]

7 hours ago, RushRoad said:

 

Voids are another mistake I often see here people post a generic oh voids of 10% per year

In my time I have never had a year with more than 1% voids

Of course I accept that there may be regional differences and what its like here in London might not be anything like what it is in the north, Im not saying its worse there I assume it is but I just dont know but here in London you are doing something very wrong if you have 10% voids

A 1% void is about 4 days.

Rentals near me average 2 monds void - 16%.

Even worse, they go empty after 6 months, dometimes even less.

[Si1]

Amateur btl has been an arbitrage on low IRs (worked so far), low maintenance outlay (playing with fire imho), tax loopholes (see s24), and govt subsidy (benefits). Being leveraged and at the whim of interest rates, govt policy, and market liquidity, it could be a cash cow one year and then sudden insolvency the next.

[CunningPlan]

42 minutes ago, spyguy said:

A 1% void is about 4 days.

Rentals near me average 2 monds void - 16%.

Even worse, they go empty after 6 months, dometimes even less.

Agreed. Just go to the letting section on rightmove and look at the date added. Loads round my way from last August. That must hurt the yield!

[jiltedjen]

April 2018 - 349 days

January 2019 - 625 days

April 2019 - 714 days

[RushRoad]

2 hours ago, Gush said:

You have come here to educate us with a simple multiple choice question, just when S24 has started, thanks for your time.

Here is mine

1% appreciation of capital with no risk.

4% appreciation where the 100% capital risk

6% appreciation where the capital risk is not limited to 100%.

You can buy a rental outright so you are not risking more than 100% of your capital

In fact I believe most rentals are owned outright?

I'm not making an argument of what's true but what is perceived (maybe the stock market is a good bet in the long run maybe there are papers and analysis that shows this). And the public simply does not trust the stock market so for many people its really 1% capital gain in a bank account risk free or 6% rental gain in a outright owned property with the risk of capital falls but also the possibility of rental increases and or capital gains.

[RushRoad]

1 hour ago, spyguy said:

A 1% void is about 4 days.

Rentals near me average 2 monds void - 16%.

Even worse, they go empty after 6 months, dometimes even less.

Most renters stay for more than 1 year.

So a 1% void might be 4 years of 0% followed by a two week void period which would roughly mean a 1% void overall.

Using your area where you say 2 months is typical if the average rental turnover in your area is 5 years then 2/60 months = 5% void

Edited April 16, 2017 by RushRoad

[RushRoad]

38 minutes ago, CunningPlan said:

Agreed. Just go to the letting section on rightmove and look at the date added. Loads round my way from last August. That must hurt the yield!

Those are probably fake ads or real ones the agent just hasn't taken down. Try calling them to see.

[spyguy]

1 minute ago, RushRoad said:

Most renters stay for more than 1 year.

So a 1% void might be 4 years of 0% followed by a two week void period which would roughly mean a 1% void overall.

Hmm.

Most renters have been in the same place for years.

However the tenure of new renters is a lot more random.

I see the same thing, time after time. Coiple get together and rent. Find out it costs a lot more expensive than thry thought, leave after 6 months or earlier.

Points to rents having to fall.

[spyguy]

3 minutes ago, RushRoad said:

Those are probably fake ads or real ones the agent just hasn't taken down. Try calling them to see.

These are rentals.

You may get skuldugery with sales but theres nothing to fained doing this with rentals.

It costs money to list proprty. Youre not going yo waste money on a rented flat.

I can walk round ans see places that have been empty for months.

I am not in London.

[CunningPlan]

5 minutes ago, RushRoad said:

Those are probably fake ads or real ones the agent just hasn't taken down. Try calling them to see.

Classic. Rather than argue you seek to discredit the evidence.

You are also continuing to make the mistake that things in the future will be the same as in the past. Removal of letting agents fees may well make a significant difference to the length of tenure.

[RushRoad]

1 minute ago, spyguy said:

These are rentals.

You may get skuldugery with sales but theres nothing to fained doing this with rentals.

It costs money to list proprty. Youre not going yo waste money on a rented flat.

I can walk round ans see places that have been empty for months.

I am not in London.

 

There could be a regional difference and probably is

It does not cost agents to list rental properties, they pay rightmove a fixed fee each month to be able to list upto a certain number.

Some ads are clearly fake/outdated both on sales and lettings