Btl Amateurs

[Spoony]

Looking at the House Buying, Renting, Selling & Property Prices forum on moneysavingexpert.com, it seems jo public are all wanting to either BTL or rent their house out. They all seem clueless about doing it and surely these people will be the amateurs which will assist with the impending crash when it comes by exposing themselves foolishly?!?!

[Jason]

Yep. They have been quite a lot recently.

But look at the replies, there never seems to be a good argument why they should go ahead! Sentiment is [slowly] changing.

[Immigrant]

Looking at the House Buying, Renting, Selling & Property Prices forum on moneysavingexpert.com, it seems jo public are all wanting to either BTL or rent their house out. They all seem clueless about doing it and surely these people will be the amateurs which will assist with the impending crash when it comes by exposing themselves foolishly?!?!

You know, I actually think these people are the ones who will NOT assist the impending crash - they are happy to BTL long after the hard-nosed pros are getting out. Yes, they will subsidise their BTL properties, but they will continue to do this. As they see it, the £100-£200 per month they are pumping into their BTL properties is money they would otherwise have to put into a pension plan. There are some who are sailing too close to the wind and they will get burnt but there are many others who are perfectly comfortable with subsidising their properties.

You may think they are stupid, but you will be the stupid one if you assume that they are going to behave as you think you would if you were in their shoes.

I have a house in the UK which I have let as I am currently living abroad with no intention of returning to the UK in the next few years. I am subsidising this property to the tune of about £100 per month. Does it bother me? Not at all - I see it as a safe long-term investment. Yes, there may be more exciting investments to be made with higher rewards, but I don't have the time or interest to pursue them and they carry higher risks IMO. A while ago I posted my particulars on here and invited people to try to persuade me to sell as I was genuinely interested to explore whether I am doing the right thing by holding on to the property - no-one even came up with an argument for selling, never mind a persuasive argument.

Until you guys realise that BTLers (rightly or wrongly) are not basing their decisions on your criteria, you are going to be constantly baffled and disappointed by their behaviour.

[zag2me]

Buy to Let is a great investment, because you are risking someone elses money. Plane and simple.

There is no other investment in the world that a bank would lend you 100k+ to take a risk on.

[Badger]

I really, really, really think you should sell your house, or you'll lose even more money in the forthcoming crash. How's that?

[zag2me]

Why sell? that would be stupid, just wait it out

[Badger]

At least we're all agreed HPC's gonna happen...

[spen1]

There are currently many cases of people who have been unable to sell their houses at what they believe to be the 'true' value, dont let anyone tell you its not tough out there, when places do seemingly sell quickly they are tied into long chains that seem to be breaking down with relative ease.

When trying to sell to move into another property and being faced with no buyers,sellers have the following options

1.Reduce the price

2.Hang on until a sale comes along

3.Use a bridging loan and go to 2.

4.Rent out the incumbent property and act as a FTB to the new property.

Is 4 a relatively new phenomenon? Did it happen in the volumes we are currently seeing? Is this proping up the market?

While I can understand this as a strategy (e.g.its a pension etc etc) it is fraught with risks, households that have done this are now twice as exposed to any increase in interst rates.

I have also been told two recent anecdotals by people that have let their properties about what a nightmare it was, one trashed the propoerty and the other stole furniture. Both BTL as a pension and have subsequently got out as it was too much hassle.

Thoughts?

[giri]

I agree with spen1 - if you have a bad experience renting your property out it tends to mitigate against keeping it. I didn't have a buy to let, but rented out our flat when we moved abroad five years ago. We had two tenants during that time, both let us down by either not coming up with the rent (easy to do when the landlord's abroad) or said they were looking after the place (got a gardener in, etc), when really they'd trashed it. In the end, we both just wanted to release the capital from it and not have the hassle of voids, stroppy tenants and paying exhorbitant management fees to an agent. Just depends how much work you're prepared to put in to being a landlord. On the other hand, if we'd kept the flat in another few years I'm sure it would've increased in value again, but hanging on to a property just for the possible future gains also means you can end up putting your own life on hold.

[since the beginning]

I think the BTL phenomena can also be extrended to people that own a BTL but rent themself. This is common in London I have come across loads. These people want to live in a nice area but can’t afford to buy, they end up buying in a rubbish area and renting that out while renting themselves in a nice area. You can also add the people that move in with their partners while keeping the old flat. I reckon these two groups make up a sizable section of the BTL market now.

I also agree that these people are probaly unlikely to panic and sell up unless we get some aggressive rate rises. They probably would be happy to subsidise by a fair amount each month because they get a ‘house at the end of it’. Lets face it these people are the ‘herd’ and will base their desicions on what they hear from friends and the media.

[Guest X-QUORK]

Immigrant,

Good post, it's nice to read a such a well written and balanced post from a property bull (if that's what you are).

To some degree I understand your decision not to sell if you honestly can't be bothered with the hassle, but I'm interested to know what kind of return you hope to achieve and over what time period? Have you factored in voids, maintenance, insurance, etc?

I honestly think you'd get a better, or at least similar return by selling up and sticking the money in a decent interest account. This might mean short term hassle, but certainly reduces it in the longer run.

[munimula]

Looking at the House Buying, Renting, Selling & Property Prices forum on moneysavingexpert.com, it seems jo public are all wanting to either BTL or rent their house out. They all seem clueless about doing it and surely these people will be the amateurs which will assist with the impending crash when it comes by exposing themselves foolishly?!?!

Unfortunately that's been the thinking for 3-4 years now. Perhaps it is yet to unfold but it seems to be that people are now OK running a loss on their BTL properties because they are 'in it for the longterm'

[warwickbloke]

Talking of ameteur BTL;

I spoke to a colleague the other day, FTB couple buying in Rugby, (people ARE still buying) they have paid extra to rush it through, but the BTL selling has dire financial needs, has tenants in the house, & hasn't yet told them they must move out, as he needs every penny.

My colleague cannot afford to pull out of sale & lose monies already spent.

Problems of dealing with amateurs.

[dogbox]

I am subsidising this property to the tune of about £100 per month. Does it bother me? Not at all - I see it as a safe long-term investment. Yes, there may be more exciting investments to be made with higher rewards, but I don't have the time or interest to pursue them and they carry higher risks IMO.

This crucial factor I have put to Dr Bubb et al many times.

Ive tried to explaine the vast bulk of people have no concept of comparative yields or growth measure, its just 'me pension', end of.

[munimula]

Talking of ameteur BTL;

I spoke to a colleague the other day, FTB couple buying in Rugby, (people ARE still buying) they have paid extra to rush it through, but the BTL selling has dire financial needs, has tenants in the house, & hasn't yet told them they must move out, as he needs every penny.

My colleague cannot afford to pull out of sale & lose monies already spent.

Problems of dealing with amateurs.

My sister and her boyfriend are buying a place from a BTLer.

This illustrates that for whatever reasons there are reasons for BTLers to sell and increase in BTL might not be continuing certainty.

[Sledgehead]

Buy to Let is a great investment, because you are risking someone elses money. Plane and simple.

Yeah, their money - your debt! That's plain as the nose on my face.

Now I wonder what the simple part is (------ton)

[munimula]

This crucial factor I have put to Dr Bubb et al many times.

Ive tried to explaine the vast bulk of people have no concept of comparative yields or growth measure, its just 'me pension', end of.

There has to be a point at which subsidising your BTL becomes unacceptable. Most are perhaps OK subsidising to the tune of £100 a month, maybe £200 but anymore than that? Probably not. Perhaps that is the BTL breaking point. Personally for new BTL entering the market, in most areas they must be approaching this and any increases in IRs, even small could signal the end of BTL. That would remove the last thing propping up the bottom of the housing ladder.

My rented flat yields the owner around 4-4.5% before costs. If they used 100% cash they are now earning less than a bank account.

If they took out a mortgage they are probably subsidising the flat at least £200 per month as interest on mortgage is more than rent, they pay management fees, service charge and I've had a new cooker, new boiler, new washing machine, leaking shower repaired etc etc. They bought the flat for £180K in 2002 and it's worth £190K tops now. In real terms this flat has been falling in value over the last 2 years as it isn't worth more now than it was then.

Yeah, their money - your debt! That's plain as the nose on my face.

Now I wonder what the simple part is (------ton)

I'm wondering what planes have got to do with it!?

Edited July 5, 2006 by munimula

[Sledgehead]

There is no other investment in the world that a bank would lend you 100k+ to take a risk on.

Why do you say "a bank" as if this implied some sort of endorsement? Did you not see the Panorama prog

showing how they really don't give a fig as long as they reach their targets?

So, given that banks are no more ethical in their lending than anyone else, here are just a few HUGELY

LEVERAGED "INVESTMENTS" (aren't they all as long as they pay off - then it's called gambling ) that

anyone can make.

CFDs, options, spread bets.

£50 will give exposure to £5000 worth of underlying index.

£5000 will give you exposure to £500,000 worth of index.

Now, what sort of deposit would you need for a £500,000 exposure to the housing market, hmmm???

Edited July 5, 2006 by Sledgehead

[Immigrant]

I really, really, really think you should sell your house, or you'll lose even more money in the forthcoming crash. How's that?

lol

But seriously, if prices drop I'd only lose money if I actually sold. So falling prices give BTLers (who can cope with the repayments) no incentive to sell - if they sell, they lose money; if they hold, the loss is only on paper. They would hope to sell when it's a sellers' market.

To my mind, there are only possible scenarios:

1. Market continues to rise (very unlikely IMO as we are reaching the limits of affordability, but not impossible - look at Ireland, the boom there continued to the point of absurdity)

2. Market stagnates i.e. the market slowly corrects as prices remain more or less static while wages gradually rise.

3. Prices fall but by less than 10%.

4. Market crashes - falls of more than 10%.

If scenario 4 materialises, well of course I'd be better off selling. But with all the other scenarios, I don't see much to be gained from selling. I am unlikely to have voids as my house is in a good area and was renovated to a high standard (I lived in it myself for 5 years). For the same reason I do not expect much in the way of maintenance costs (I put in a new boiler etc). The property is managed by an excellent letting agent who has found an excellent tenant and who takes care of everything for me, so it is totally hassle-free.

I just don't have sufficient belief that we are facing a crash to sell on that basis. The only price to be paid for hanging on is the opportunity cost - maybe I could be doing something better with my equity (about £45K at a guess). But if I hang on I am insulated against further price rises in the future (even if we have a crash of sorts, the market will surely rise again sooner or later) and what do I do with my £45K? Property is a low-risk investment as even if prices fall, a house will always be worth something (that's why banks are so willing to lend money to buy property). As I see it, rents will slowly rise over the years so soon I will have a nice property which is paying for itself, thank you very much. The downside is that we may have a massive crash (but it would have to be a big one, and I'm not prepared to take the gamble), and the opportunity cost. Sure, maybe I could be doing something so exciting with my £45K but there would be risks and hassles and would I have the equivalent of a house at the end of it? Remember my mortgage repayment is fixed (except for interest rate changes), while the rent will slowly rise so soon I will not be subsidising the house and it will pay for itself.

The only thing that would change my mind is a BIG hike in interest rates - a quarter or half a percent here or there would hurt but wouldn't make that much difference.

[Nelly]

If the market drops then the people forced to rent, will start to buy, so less renters and more voids, on top of lower house prices and this is why they will be f*cked.

[Guest X-QUORK]

Forgive me here Immigrant, but just because you've put in a new boiler it would be rather naive to think you won't need to spend much on maintenance in future. A sensible maintenance budget for any house is 1-2% of it's value per annum.

I guess you've made your mind up, but throwing money at a property every month when you could just watch your money grow in a savings account is not my idea of sound financial planning.

[redwing]

Immigrant is not necessarily typical of a lot of BTLers.

Assuming that s/he might come back to the UK at some stage in the future and re-enter the market as a owner occupier, then it doesn't matter too much if prices go up or down, s/he will still have a house to live in once the tenants are out.

And if s/he wants to move the new house is going to cost more or less the same as the house being sold.

If Immigrant wants to trade up when s/he returns then a property correction will make the rung up the ladder more manageable.

[Immigrant]

Immigrant is not necessarily typical of a lot of BTLers.

Assuming that s/he might come back to the UK at some stage in the future and re-enter the market as a owner occupier, then it doesn't matter too much if prices go up or down, s/he will still have a house to live in once the tenants are out.

And if s/he wants to move the new house is going to cost more or less the same as the house being sold.

If Immigrant wants to trade up when s/he returns then a property correction will make the rung up the ladder more manageable.

Spot on. Thanks Redwing.

"Normal" BTLers are not in quite the same position but I think they employ a lot of the same reasoning. This reasoning may seem crazy to a lot of people on here, but it makes sense to a lot of BTLers. It doesn't really matter whose sums are right - the point is if you are waiting for BTLers to do what you think you would do in their shoes, you may have a long wait.

I also wonder how many "normal" BTLers there are - as someone mentioned earlier, a lot of people who move in with partner hang on to their own property as a kind of insurance policy in case things don't work out.

[sikejsudjek]

Most of these people are too late into the market to buy to let as an investment. How many have done the sums ? Very few I would suggest. They probably have listened to Kirsty and co and made a decision on that basis only. Classic bubble economics at work with the herd heading straight for the cliff...

Edited July 5, 2006 by sikejsudjek

[oracle]

At least we're all agreed HPC's gonna happen...

we have good company too!!...when the lkes of george soros get involved it usually happens!...for those uneducated enough,he's the guy who broke sterling back in the 90's in the middle of ERM!!!...not to be f***ed with....period!