An Absoulute Fact For Landlords To Ponder On

[homeless]

Here in my town here are the facts

your typical landlords property here costs 100k this is a terraced house

these houses rent at 100 pounds per week, landlords have been trying for 3 years to raise the cost but with failure, some that try them at 110 or 115 ebd up having voids that make the income direved worse than having a steady long term rent of 100 pounds a week

100 pounds a week is 5200 a year.

100k in the bank will make intrest of 5200 a year, of which there is no worry of finding tenents, no worry of damage and no repairs or voids.infact all you have to do is read your monthly statement.

Only a complete madman then would put there 100k into buyinbg a house to rent for 100 pounds a week, so obviously no value there at all.

if you do it via a mortgage the figures are even worse, the cost of mortgage repayments are far greater than the 100 pounds a week you will get.

And even the vested intrests now agree that the price of houses is stagnating at best, so there is also no capital appreciation to offset the lower than cost rental yields.

if a landlord is justfying his postion becuase of the fact the property value has increased in the last few years, unless he sells up and collects, then hes clearly a buisness still selling black and white tv's when his money would be better spent on colour ones.So why possible keep your btl?.

For many others the figures are even worse ie 250k flat that makes only 800 in rent a month

400k town house you only get 1100 a month for

So i put it to every btl landlord on this site to explain to me and others how you think property is a good buissness venture in todays climate.

[Casual Observer]

Here in my town here are the facts

your typical landlords property here costs 100k this is a terraced house

these houses rent at 100 pounds per week, landlords have been trying for 3 years to raise the cost but with failure, some that try them at 110 or 115 ebd up having voids that make the income direved worse than having a steady long term rent of 100 pounds a week

100 pounds a week is 5200 a year.

100k in the bank will make intrest of 5200 a year, of which there is no worry of finding tenents, no worry of damage and no repairs or voids.infact all you have to do is read your monthly statement.

Only a complete madman then would put there 100k into buyinbg a house to rent for 100 pounds a week, so obviously no value there at all.

if you do it via a mortgage the figures are even worse, the cost of mortgage repayments are far greater than the 100 pounds a week you will get.

And even the vested intrests now agree that the price of houses is stagnating at best, so there is also no capital appreciation to offset the lower than cost rental yields.

if a landlord is justfying his postion becuase of the fact the property value has increased in the last few years, unless he sells up and collects, then hes clearly a buisness still selling black and white tv's when his money would be better spent on colour ones.So why possible keep your btl?.

For many others the figures are even worse ie 250k flat that makes only 800 in rent a month

400k town house you only get 1100 a month for

So i put it to every btl landlord on this site to explain to me and others how you think property is a good buissness venture in todays climate.

The old investment rule was known as 12/20.

Never pay more than 12 times the annual rental income, sell it if it ever appreciates to 20 times (because that's probably the peak)

Edited February 14, 2006 by Casual Observer

[Without_a_Paddle]

100k in the bank will make intrest of 5200 a year, of which there is no worry of finding tenents, no worry of damage and no repairs or voids.infact all you have to do is read your monthly statement.

Don't forget you will have to pay 20% tax on any interest.

40% tax if you are a high rate taxpayer.

Then inflation will dent it's value a little further...

[Badlad1967]

Don't forget you will have to pay 20% tax on any interest.

40% tax if you are a high rate taxpayer.

Then inflation will dent it's value a little further...

You forgot to say "Property always goes up..."

[Unexpected]

You forgot to say "Property always goes up..."

And there's the capital gains tax on any appreciation. Any profit made with btl will be subject to tax.

[frugalista]

Don't forget you will have to pay 20% tax on any interest.

40% tax if you are a high rate taxpayer.

Then inflation will dent it's value a little further...

Rental income is also taxable.

frugalista

[underpressuretobuy]

Rental income is also taxable.

frugalista

I am personally convinced that an enormous number of btl landlords are not declaring their income.

I have certainly rented places in the past where it was obvious this was the case.

I think this is why so many landlords see it as a good investment, purely because they can make money without doing any work (these sort of landlords are loath to do repairs or maintenance) and don't have to pay tax on it.

[frugalista]

I am personally convinced that an enormous number of btl landlords are not declaring their income.

I have certainly rented places in the past where it was obvious this was the case.

I think this is why so many landlords see it as a good investment, purely because they can make money without doing any work (these sort of landlords are loath to do repairs or maintenance) and don't have to pay tax on it.

Probably you're right. Let's see what happens to property prices when the Inland Revenue decides to have a crackdown on BTL tax evaders. The Housing Act 2004 requires all landlords to put tenants' deposits in a registered escrow account. It comes into force this year. This will mean there is a clear paper trail showing which properties are being let and what the rent is. Presumably Inland Revenue can then use this as a resource to slam a tax bill on fraudulent landlords. Incidentally perhaps mortgage lenders can also use it as a resource to see if borrowers are letting out properties against the terms of their mortgage.

frugalista

Edited February 14, 2006 by frugalista

[Londoner]

100k in the bank will make intrest of 5200 a year, of which there is no worry of finding tenents, no worry of damage and no repairs or voids.infact all you have to do is read your monthly statement.

So i put it to every btl landlord on this site to explain to me and others how you think property is a good buissness venture in todays climate.

I'm not a landlord but I imagine the answer will be along the lines of.. "you can't walk into a bank and borrow 100 grand simply to put it in a savings account."

If you could, I'm sure it would be quite a popular thing to do.

[Jason]

I'm not a landlord but I imagine the answer will be along the lines of.. "you can't walk into a bank and borrow 100 grand simply to put it in a savings account."

If you could, I'm sure it would be quite a popular thing to do.

You probably could. But why would you? The interest you pay is more than the interest you earn!

[Without_a_Paddle]

Here in my town here are the facts

if a landlord is justfying his postion becuase of the fact the property value has increased in the last few years, unless he sells up and collects, then hes clearly a buisness still selling black and white tv's when his money would be better spent on colour ones.So why possible keep your btl?.

So i put it to every btl landlord on this site to explain to me and others how you think property is a good buissness venture in todays climate.

If the LL bought the BTL 2 years ago (now worth 100k) for £70k with a repayment loan he certainly has a dilemma.

He could:

Sell and bank the cash (and pay tax on it)

But this has other problems. It may take 4 months or longer to sell the house. Even longer if he has to wait for a tenancy to end. Every month without a tenant costs £450.

The chances are the property won't sell well being an ex rental unless more time/money is spent on it.

i.e. By the time it is sold and all the fees, lost rent, mortgage penalties and tax (and rental deposit) are paid the net cash in the bank will be minimal.

£15k? This will get him about £750 per year in interest BEFORE TAX.

If he wishes to reinvest in property in the future (if prices dip) he will need to pay fees and duty again. This needs to be deducted from the £15k in that case.

(not much left then...)

Also, prices would need to fall by >20% (probably 25%) in a few years (in relative terms, without inflation) to rebuy a BTL with a similar mortgage (ON THE SAME PROPERTY).

i.e. if prices fell 'only' 20% he would be back to square one, but he would have wait for a few years longer before he got the house. (could have had the house in 23years, now he's going to have to wait 3 or more years longer)

Or:

The alternative is to keep the BTL and the tenant. The house is bringing in £450 pm and the (fixed rate?)repayment mortgage is £400pm.

This means the tenant is paying off ALL the mortgage and also another £50pm on top.

£50 x12 = £600 per year. Sure he will pay tax on this but he can offset all this by 'maintenance' requiremnts etc.

So, the LL can either bank £15k or sit tight and watch the tenant pay off the mortgage on the property.

The rental income will tend to rise in line with inflation (another bonus)

Which will be worth the most in 23 years' time? £15k or a terraced house?

The £15k will obviously grow but this will be dented badly by tax and inflation.

Of course if prices fall in a few years, you could argue a loss for the BTL. But as long as the tenant is there, paying the rent each month then the house will be paid for after 23 years (probably a lot less with inflation).

Not bad. Tell me a cheaper way to pay towards your pension.

Even if you invested the £15k in a pension it would not match the value of a terrace house in 25 years' time.

HTH to answer your concerns over the plight of your local landlords, Homeless

[frugalista]

[....]

Or:

The alternative is to keep the BTL and the tenant. The house is bringing in £450 pm and the (fixed rate?)repayment mortgage is £400pm.

This means the tenant is paying off ALL the mortgage and also another £50pm on top.

£50 x12 = £600 per year. Sure he will pay tax on this but he can offset all this by 'maintenance' requiremnts etc.

This is wrong. You cannot offset the whole mortgage payment amount against the rent for tax purposes, only the interest portion. What this portion is will depend on the interest rate, term of the mortgage etc. Suppose the interest portion of the mortage is £100 per month out of the £400 per month repayment. This would be typical in today's low rate climate. Then the landlord would have to pay tax on £350 per month = £4200 per year, minus maintenance costs, as you mentioned.

frugalista

[Without_a_Paddle]

This is wrong. You cannot offset the whole mortgage payment amount against the rent for tax purposes, only the interest portion. What this portion is will depend on the interest rate, term of the mortgage etc. Suppose the interest portion of the mortage is £100 per month out of the £400 per month repayment. This would be typical in today's low rate climate. Then the landlord would have to pay tax on £350 per month = £4200 per year, minus maintenance costs, as you mentioned.

frugalista

I think you are wrong with your figures.

The interest will represent the majority of the mortgage payments at the start of the 25yr term.

i.e £270 out of the £400 at yr2.

So the tax would be on £180 per month. (£450 pm rent)

You don't need to claim much maintenance to offset this...

[frugalista]

I think you are wrong with your figures.

The interest will represent the majority of the mortgage payments at the start of the 25yr term.

i.e £270 out of the £400 at yr2.

So the tax would be on £180 per month. (£450 pm rent)

You don't need to claim much maintenance to offset this...

Okay, suppose the taxable income from the BTL business is £180 per month as you say.

That's £2160 per year. Just to be generous, let's say you are in the basic tax bracket (22%). So, you must pay £475.20 in tax per year on the BTL business. (if you were in the 40% bracket it would be £864).

This practically wipes out your £600 per year cash inflow from the property.

You can't claim maintenance to offset the tax unless you actually spend money on maintenance, that would obviously be tax fraud. Seems like if you spend any money at all on maintenance besides replacing a few light bulbs you will end up cash-flow negative!

frugalista

[Without_a_Paddle]

Okay, suppose the taxable income from the BTL business is £180 per month as you say.

That's £2160 per year. Just to be generous, let's say you are in the basic tax bracket (22%). So, you must pay £475.20 in tax per year on the BTL business. (if you were in the 40% bracket it would be £864).

This practically wipes out your £600 per year cash inflow from the property.

You can't claim maintenance to offset the tax unless you actually spend money on maintenance, that would obviously be tax fraud. Seems like if you spend any money at all on maintenance besides replacing a few light bulbs you will end up cash-flow negative!

frugalista

I suppose you could argue that time is money and you don't need to spend much time at the property at £60 per hour to make a claim. (maybe your 'friend' who does any repairs for you happens to be a plumber etc)

Do you declare all your income to the taxman? Does anyone?

But let's put that to one side.

Even if you only 'break even' each month the repayment mortgage debt shrinks by £130 per month at year 2.

As each year goes by the debt will shrink faster. This is because you only pay interest on what is left of the shrinking debt. Also you can hope for rental inflation to speed things up.

After the 23 years are up you get a house.

I'll ask the question again.

How else can you buy a house/pension for less?

Try paying £100pm into a pension and see how far it gets you. Don't forget, you can only do this until the rent inflates to put the LL in the black. (He's already in the black...)

[homeless]

If the LL bought the BTL 2 years ago (now worth 100k) for £70k with a repayment loan he certainly has a dilemma.

He could:

Sell and bank the cash (and pay tax on it)

But this has other problems. It may take 4 months or longer to sell the house. Even longer if he has to wait for a tenancy to end. Every month without a tenant costs £450.

The chances are the property won't sell well being an ex rental unless more time/money is spent on it.

i.e. By the time it is sold and all the fees, lost rent, mortgage penalties and tax (and rental deposit) are paid the net cash in the bank will be minimal.

£15k? This will get him about £750 per year in interest BEFORE TAX.

If he wishes to reinvest in property in the future (if prices dip) he will need to pay fees and duty again. This needs to be deducted from the £15k in that case.

(not much left then...)

Also, prices would need to fall by >20% (probably 25%) in a few years (in relative terms, without inflation) to rebuy a BTL with a similar mortgage (ON THE SAME PROPERTY).

i.e. if prices fell 'only' 20% he would be back to square one, but he would have wait for a few years longer before he got the house. (could have had the house in 23years, now he's going to have to wait 3 or more years longer)

Or:

The alternative is to keep the BTL and the tenant. The house is bringing in £450 pm and the (fixed rate?)repayment mortgage is £400pm.

This means the tenant is paying off ALL the mortgage and also another £50pm on top.

£50 x12 = £600 per year. Sure he will pay tax on this but he can offset all this by 'maintenance' requiremnts etc.

So, the LL can either bank £15k or sit tight and watch the tenant pay off the mortgage on the property.

The rental income will tend to rise in line with inflation (another bonus)

Which will be worth the most in 23 years' time? £15k or a terraced house?

The £15k will obviously grow but this will be dented badly by tax and inflation.

Of course if prices fall in a few years, you could argue a loss for the BTL. But as long as the tenant is there, paying the rent each month then the house will be paid for after 23 years (probably a lot less with inflation).

Not bad. Tell me a cheaper way to pay towards your pension.

Even if you invested the £15k in a pension it would not match the value of a terrace house in 25 years' time.

HTH to answer your concerns over the plight of your local landlords, Homeless

first your assuming the past history into your equation, i clearly stated at this present time

youve added a 30% growth to get to your figures.

im talking a house costs 100k now and gets a 100 pound per week rent

secondly your assuming the tenent is paying enough to pay off the mortgage on the property, clearly the tenent is not, an intrest only loan of 100k is at a minimum 650 pounds per month ie 150 pounds short of paying even an intrest only loan.

And thirdly by holding onto the property your effectively flogging a dead horse becuase your in a catch 22 situation, ie if you hold you have to pay to keep the repayments up by paying into it as well.And secondly if you sell your losing gains due to tax.either way your buggered.

And lastly as i mentioned firstly WHO THE HELL IS TALKING ABOUT PAST PROFITS, everyone would agree it was a good thing to buy now weve seen the property increase by 300% in about 6/7 years.

But the present time to pay that 100k, to get in 100 pounds a week is totaly stupidity.

hence btl is dead and a mugs game as i have clearly shown

[frugalista]

I suppose you could argue that time is money and you don't need to spend much time at the property at £60 per hour to make a claim. (maybe your 'friend' who does any repairs for you happens to be a plumber etc)

Do you declare all your income to the taxman? Does anyone?

Of course I do. Anyone who does not is a criminal.

frugalista

[Andrushka]

Okay, suppose the taxable income from the BTL business is £180 per month as you say.

That's £2160 per year. Just to be generous, let's say you are in the basic tax bracket (22%). So, you must pay £475.20 in tax per year on the BTL business. (if you were in the 40% bracket it would be £864).

This practically wipes out your £600 per year cash inflow from the property.

You can't claim maintenance to offset the tax unless you actually spend money on maintenance, that would obviously be tax fraud. Seems like if you spend any money at all on maintenance besides replacing a few light bulbs you will end up cash-flow negative!

frugalista

Whilst you can't claim maintenance to offset the tax without evidence to show for it, you CAN claim a wear and tear allowance equivalent to 10% of the rent to cover furniture renewals etc. If you are a skinflint landlord you can usually get away without actually spending this and legally claim the allowance.

[Without_a_Paddle]

first your assuming the past history into your equation, i clearly stated at this present time

No you didn't.

I answered this part of your post:

if a landlord is justfying his postion becuase of the fact the property value has increased in the last few years, unless he sells up and collects, then hes clearly a buisness still selling black and white tv's when his money would be better spent on colour ones.So why possible keep your btl?.

and lastly as i mentioned firstly WHO THE HELL IS TALKING ABOUT PAST PROFITS

You were. I point you again to the bold quotes above taken from your initial post.

I answered your question and now you seem angry...

[Euphorion]

Here in my town here are the facts

your typical landlords property here costs 100k this is a terraced house

these houses rent at 100 pounds per week, landlords have been trying for 3 years to raise the cost but with failure, some that try them at 110 or 115 ebd up having voids that make the income direved worse than having a steady long term rent of 100 pounds a week

100 pounds a week is 5200 a year.

100k in the bank will make intrest of 5200 a year, of which there is no worry of finding tenents, no worry of damage and no repairs or voids.infact all you have to do is read your monthly statement.

Only a complete madman then would put there 100k into buyinbg a house to rent for 100 pounds a week, so obviously no value there at all.

if you do it via a mortgage the figures are even worse, the cost of mortgage repayments are far greater than the 100 pounds a week you will get.

And even the vested intrests now agree that the price of houses is stagnating at best, so there is also no capital appreciation to offset the lower than cost rental yields.

if a landlord is justfying his postion becuase of the fact the property value has increased in the last few years, unless he sells up and collects, then hes clearly a buisness still selling black and white tv's when his money would be better spent on colour ones.So why possible keep your btl?.

For many others the figures are even worse ie 250k flat that makes only 800 in rent a month

400k town house you only get 1100 a month for

So i put it to every btl landlord on this site to explain to me and others how you think property is a good buissness venture in todays climate.

[pyewackitt]

I'll ask the question again.

How else can you buy a house/pension for less?

Try paying £100pm into a pension and see how far it gets you. Don't forget, you can only do this until the rent inflates to put the LL in the black. (He's already in the black...)

The obvious way... wait until the market you are looking to invest in crashes!

Buy your property when it hits half price and then watch at it achieves the same value in 23 years as someone who bought in peak 2004 gets.... but for half the investment capital and a fraction of the risk...

For example I wasn't going to invest in shares... but on the 13th day of consecutive FTSE falls I felt the time was right to pounce and threw the only £2K spare I had into the market.... this is now worth triple the price I paid... it is not 'profit' because I have not sold... but its worth the same as those people who spent £10K on the same shares only 6 months before.

Investment is much like comedy.... it's all about timing!

- Pye (Property Speculation Ninja )

[Time to raise the rents.]

Here in my town here are the facts

your typical landlords property here costs 100k this is a terraced house

these houses rent at 100 pounds per week, landlords have been trying for 3 years to raise the cost but with failure, some that try them at 110 or 115 ebd up having voids that make the income direved worse than having a steady long term rent of 100 pounds a week

100 pounds a week is 5200 a year.

100k in the bank will make intrest of 5200 a year, of which there is no worry of finding tenents, no worry of damage and no repairs or voids.infact all you have to do is read your monthly statement.

Only a complete madman then would put there 100k into buyinbg a house to rent for 100 pounds a week, so obviously no value there at all.

if you do it via a mortgage the figures are even worse, the cost of mortgage repayments are far greater than the 100 pounds a week you will get.

And even the vested intrests now agree that the price of houses is stagnating at best, so there is also no capital appreciation to offset the lower than cost rental yields.

if a landlord is justfying his postion becuase of the fact the property value has increased in the last few years, unless he sells up and collects, then hes clearly a buisness still selling black and white tv's when his money would be better spent on colour ones.So why possible keep your btl?.

For many others the figures are even worse ie 250k flat that makes only 800 in rent a month

400k town house you only get 1100 a month for

So i put it to every btl landlord on this site to explain to me and others how you think property is a good buissness venture in todays climate.

This is probably the most basic summary of BTL I've ever seen.

Hardly worth a reply really....

[anto]

I think you've gone into more detail in this chain than many small-scale landlords do before they make their investment. If house prices always rise and there's no safer investment than bricks and mortar (as many have had drilled into them), then it doesn't matter if the rent doesn't cover the mortgage, or if you could earn more with your money in the bank: capital appreciation cancels this out and makes it worthwhile.

Of course, this is speculation and highly risky - but how many understand that?

My landlords are a good example: they bought a new-build flat for £135k 18 months ago with cash from an inheritance, I rent it for £510 pcm. I reckon the market value is now £110-120k, and falling as it loses its shiny new feeling. I wonder if they have even considered how they are going to get their money back.

Anto.

[Mags]

Do you declare all your income to the taxman? Does anyone?

Of course.

Are you telling us you don't?

[okonu]

"House as Pension" has some problems rarely considered. Not to say that property isn't a good stable, long term investment suitable for pensions (which is why most shopping centres/ office blocks are owned by pension funds...)

But, as a DIY pension plan.

- Too many eggs in one basket. Yes, the 100 quid a month "subsidising" the tenant may be better than in a pension plan, but you also should have the pension plan. Diversification of risks and all that.

- Regulatory risk. Look at the changes in tenancy/ property law in the last 20-30 years. Why is there any reason to think there will not be similar changes in the future?

- Taxation. So, you hit 67 and retire. Either you have to continue running your property portfolio as a small business (so not really retirement) or sell, or pay someone else to look after it. Selling will likely trigger tax that wouldn't be paid if you had invested in a pension. Heck - is the property in the same place as you want to retire?

Again, I am not saying that property isn't a good asset class as part of a pension portfolio. But those who opt out of traditional pensions for bricks and mortar only, I think they will be sore disappointed