Why Btl When You Can Get 6.30% Pa Risk Free?

[nohpc]

Absolutely, Amortization is the killer on any loan.

Most fixed rates allow 10% overpayment without penalty, do some overtime, go to Butlins not Bermuda and get it paid off quick smart.

Had to look up amortization in the dictionary. Nice word.

[jonpo]

you should weight your portfolio according to risk adjusted yeild: in todays evironment of ultra low yields in risky assets Every portfolio should have a substatial cash weighting

[bomberbrown]

I interpreted the OP's thread as suppose you were to land a nice £200k windfall?

Do you stick it in the bank/bonds with relatively risk free returns or do you buy a property with which to rent out?

[misfit]

I think some will, and some won't. Inflation is a wonderful thing to the indebted.

Those that can hold out for the long term (10-15) years will (be likely to) see their debt eroded hugely and rents rise, and probably be left with a nice little inflation-linked cash cow for their retirement.

However, I can equally see a minor downturn shaking out many of them at huge losses.

But that wasn't really the question was it?

The reason they aren't putting their money in 6.3% accounts is because it will never make them rich. They are doing BTL because they think it will.

The majority of properties in BTL portfolios are leasehold flats. If you have a BTL this does not apply.

The average lease of a privately built flat is 99 years.

If they keep the investment for 15 years as above they will have a lease of 84 years. If they have not managed to buy a proportion of the freehold by this time they can add another 10K onto the cost of the flat. This is only if they can get the required percentage to buy. If they do not meet the requirements there is no law to say the freeholder has to sell. The longer this situation persists the higher the cost. If leaseholders are not able to purchase their freehold they will eventually become assured tenants.

I know a friend in London who could no longer get a mortgage as his flat was below 60 years on the lease and the cost of the freehold was £45K.

A further cost which may affect leaseholders in the future and definitely one which needs a lot of thought.

Over the next 10 years there are going to be a lot of leaseholders from the 80's flat building boom who will be in this situation.

[misfit]

The first line should be if you have a BTL HOUSE this does not apply as it only applies to leasehold flats.

[nohpc]

you should weight your portfolio according to risk adjusted yeild: in todays evironment of ultra low yields in risky assets Every portfolio should have a substatial cash weighting

Yes but you are better holding cash as flexible overpayment in your mortgage than anywhere else (once you have used up your ISA allowance)

[Flat Bear]

Yes it is possible. But as I have said, assuming rents do not fall (which is unlikely), even if house prices decrease you do not lose money unless you sell. Youl would be breaking even or making a small profit on the rents and losing equity on the house. Of course you want to sell either before the crash or after prices have picked up again. Selling at the lowest point in the crash is the worst thing, so if you wait and see and then sell at that point you're making a mistake.

If you have bought a bad property that does not rent out easily and when it does it does not even repay the interests on the mortgage then you should be selling now as it is unlikely you are going to be making a lot of equity in the next few years, so chances are you're going to lose money...

If you are making decent profits on your rents then you might decide to keep them even throughout a crash (which is not necessarily going to happen anyway). This is also the decision that most people who would have negative equity after having paid capital gain tax will try to go for.

Ah, there is not limit to how bad things can go:

- house prices could decline by 30%

- rents might (for some strange reason) also fall by 30%

- interest rates might get to 15%

- unemployment migh rise to >10%

- all immigrants might leave the UK thus lowering demand for rents and causing lots of voids (and lower rents).

etc...

In this scenario the average BTLer would go bankrupt, woudl have to sell everything losing all money and equity and also their own house.

Thing is:

- I do not thing nominal prices could possibly fall by more than 15% (if they fall at all).

- if prices fall rents are likely to increase

- interest rates will probably never reach 6.50%

- unemployment hopefully will not rise to anywhere near 10%

- immigrants are still coming and increasing demand for rents and housing in general.

Your reasoning does seem quite sound but you may be underestimating the gamble

Firstly, we are talking about unleveraged investments right? because any significant borrowing will result in loss which I think is obvious to everyone

But as you say "whats the worst that can happen"? and on a non leveraged property you would still be making an increasing "real" revenue from your property(s) unless!

Ponder this:

Immigration is now a much more important issue than just housing as it is effecting everyones life in England. It effects everything from where do we put our waste, get our water, put our criminals, find space for recreation, educate our children, to why cant I find a nice place to purchase or rent at a reasonable price, so it is quite possible there will be a political reversal in policy. Look for signs of civil unrest such as racial/cultural/political tensions, higher unemployment, higher crime rates, strike actions etc and if you see a trend you could very well be looking at a regime change and if this does become the case a dramatic change in the supply/demand relationship. Property prices and rental values would decrease with voids becoming longer and longer and potentially only the most desirable would be lettable at only a fraction of the current market.

So if real prices falls by around 25%, which would still be possible even with the high demand of immigration, rents stays around the same because of demand but limited by max. affordability, interest rates rise to around 12.5% which I believe very probable, with unemployment going over 14% all of which happen whilst the uk enters a long recession you would still be in a good position. The big losers will be those that are in debt and holding mortgages and the country in general. The winners will be those owning real tangible assets with no liabilities even if those assets have fallen in value.

Supply and demand, unfortunately, is important in economics and housing is a very in-elastic comodity. Yer canny change the laws of economics captain.

[Si1]

I think in todays market it would be foolish to hold cash as it is performing below inflation in savings accounts.

well what if everything else ends up performing even worse? is it better under your mattress? your statement appears to bhe relative to nothing at all, so pretty much without any value.

[It is different this time]

This is now getting interesting yesterday when I gave an example of why BTL market, in this topic post number 38, is a suicidal investment some bulls claimed that was just one off and they would match my example with a profitable BTL example. So far they have failed to identify a profitable BTL example in today's market however I will now prove why my example was not one off.

Some people think Brighton is booming and it is the next London. This is far from the truth. Here is the one of the reasons why Brighton market seems to be booming. There are too many amateur landlords around and thanks to them the crash is getting closer.

This 2 bed flat is on the market for £250K, same as earlier finding, but this time the rental value of this flat is only £800pcm.

Based on the same cost as my earlier post "38" the landlord of this property will be subsidising his investment pension by £8960pa that is a net negative yield of -3.6%

Any more bulls left to argue that BTL is still profitable?

[Tommy]

For me that's enough for the night, I suggest you find a good one & I'll check how good it is tomorrow. the rules are;

1998 doesn't count

Buying 2002 & selling 2006 has got nothing to do with this topic neither.

Just find a BTL property that is on the market today and it is profitable to BTL. You'll have to clearly put the figures, like I did, so everyone can see how profitable BTL. You never know if you convince me I might go out & buy 3 BTL instead of investing in bonds for measy 6.30%!

Just to reiterate that I have given 2007 prices and not 1998 2002 or 2006 prices in my calculations.

I am tired and I am not going to do any more calculations, but I will show you a property which might be good. You need to go and see it though...

http://search.manningstainton.co.uk/mnssit...mend=1180015223

3 bed (or 4 bed) semi-detached fro 99k, 10 minutes outside Leeds.

This type of property can easily let for 550 unfurnished. Also being a freehold property there are no management fees.

Now, if you go and see it and the house is in a good condition, you should be able to offer 95k and the offer might be accepted. This house for 95k could be a good investment supposing you can rent it easily for 550 as I think. You need to go to other agencies and ask what a property like this could rent for, then you need to look at similar properties for rent in the area.

If it all adds up, you'll see that 95k and 550 a month unfornished can be a decent investment. Of course in 2002 you could do better investments, but hey, such is life.

I am sure that if you keep an eye on the market you might find even better properties and you can even find some at auction. I took me 5 minutes to find this one on the web, I am sure in a month or so I could do better.

I have already given my calculations for a property that costs 100k and rents for 550 partly furnished, they were incomplete but a good indication. This time the property could potentially be bought for 95k and could rent for 550 unfurnished.

Again, a person from Leeds might decide not to use an agency and therefore you might want to do your calculations with and without estage agent fee.

Finally, if prices did go down and that property in a two years time was worth 85k, well, as long as you are making a profit on the rents all you have to do is wait until the price catches up again. If prices stagnate you'll make a small profit on the rent. If prices keep increasing by something below RPI-X (this is my prediction) you can make >10% profits considering both rents and equity. If prices keep rising at a faster rate, well, it's possibly just a too optimistic!

[Tommy]

inflation can be beneficial for borrowers OR savers depending primarily on its relationship to the prevailing interest rates of the time. To suggest arbitrarily one way or another is at best rationalisation and at worst foolishness. A bit like pretending that black wednesday never happened.

No, economics teaches us that inflation is usually friend of borrowers and enemy of savers.

First link I found:

http://www.telegraph.co.uk/money/main.jhtm.../19/cmian19.xml

QUOTE:

"Inflation is an insidious enemy of savers but can be the borrower's friend."

"By eroding the real value of money - that is, its purchasing power - inflation eases the burden on borrowers, who can repay debts with cash that is worth less than it was when the loan was taken out. For the same reason, by reducing what every pound can buy, inflation robs savers who are repaid for their thrift with 'funny money'."

Why people have to always accuse other people of being foolish. I say something and you think I am foolish. Can't you just accept that I have a differnt point of view?

[Tommy]

#

have you any idea the overheads involved in banking, you are descibing flexible savings products that cannot be relied upon to cover major mortgage balances, this is why major lenders regularly make major issues of corporate bonds to cover their mortgage borrowing. what you suggest is simplistic, very risky, and not actually practiced, so far as I am aware.

And then why would they bother lending it at less than the base rate when they can instead buy govt bonds (much less risky than lending out as mortgages) at zero risk?

Because if I have 100 pounds I can buy 100 pounds worth of bonds.

If I borrow 1M at 5.5% from BOE I can then buy 1M and 100 pounds worth of bonds. I would pay 5.5% on the 1M and get 6% on the bond.

If however use fractional reserve banking to transform the 1M into 10M, I then pay 5.5% interest on 1M, 4% on average on the whole amount on deposit (liability) and get at least 5.5% on the 10M i loan out. So on average I get the difference betwen 4% and 5.5% on 10M.

Without doing this I would only get the difference between 5.5% and 6% of 1M.

[Tommy]

Your reasoning does seem quite sound but you may be underestimating the gamble

Firstly, we are talking about unleveraged investments right? because any significant borrowing will result in loss which I think is obvious to everyone

But as you say "whats the worst that can happen"? and on a non leveraged property you would still be making an increasing "real" revenue from your property(s) unless!

Ponder this:

Immigration is now a much more important issue than just housing as it is effecting everyones life in England. It effects everything from where do we put our waste, get our water, put our criminals, find space for recreation, educate our children, to why cant I find a nice place to purchase or rent at a reasonable price, so it is quite possible there will be a political reversal in policy. Look for signs of civil unrest such as racial/cultural/political tensions, higher unemployment, higher crime rates, strike actions etc and if you see a trend you could very well be looking at a regime change and if this does become the case a dramatic change in the supply/demand relationship. Property prices and rental values would decrease with voids becoming longer and longer and potentially only the most desirable would be lettable at only a fraction of the current market.

So if real prices falls by around 25%, which would still be possible even with the high demand of immigration, rents stays around the same because of demand but limited by max. affordability, interest rates rise to around 12.5% which I believe very probable, with unemployment going over 14% all of which happen whilst the uk enters a long recession you would still be in a good position. The big losers will be those that are in debt and holding mortgages and the country in general. The winners will be those owning real tangible assets with no liabilities even if those assets have fallen in value.

Supply and demand, unfortunately, is important in economics and housing is a very in-elastic comodity. Yer canny change the laws of economics captain.

NO, I was talking about leveraged investment. Of course leveraged to a degree that still puts you in profit on the rents. You need to find a good property and I have given example of decent properties.

If you really think unemployment will reach 14% and that house prices wil fall by 25% and that interest rates will hit 12.5% then you should not do BTL, I agree. However I feel you are too pessimistic. THis is very unlikely. I think a crash is possible, but the scenario you describe is extremely unlikely. If you are this pessimistic than you should also factor in a meteorite crashing into the earth, a new world war, the UK being invaded by France etc... Ok, I am joking but i think you're taking it too far into the very very unlikely.

[Tommy]

This is now getting interesting yesterday when I gave an example of why BTL market, in this topic post number 38, is a suicidal investment some bulls claimed that was just one off and they would match my example with a profitable BTL example. So far they have failed to identify a profitable BTL example in today's market however I will now prove why my example was not one off.

Some people think Brighton is booming and it is the next London. This is far from the truth. Here is the one of the reasons why Brighton market seems to be booming. There are too many amateur landlords around and thanks to them the crash is getting closer.

This 2 bed flat is on the market for £250K, same as earlier finding, but this time the rental value of this flat is only £800pcm.

Based on the same cost as my earlier post "38" the landlord of this property will be subsidising his investment pension by £8960pa that is a net negative yield of -3.6%

Any more bulls left to argue that BTL is still profitable?

I have just given you an example (and I had already provided an example in my original post anyway).

The answer is simple: do not buy that property in Brighton. What are you trying to prove?! That there are bad properties that if you buy for BTL you are going to lose money on them?! Yeah, I agree, this is true. This does not mean anything however!

You need to do you maths and buy a property that has a positive yield. I have provided one example of it I found in 5 minutes. I am sure if you spend more time and attend auctions etc.. you can find even better and more profitable deals.

You are getting boring. You can provide us another 100 example of bad properties but you would be wasting your time, as I have told you already:

as long as there are some properties (even if very few) that are good for BTL then BTL can still be profitable. The fact that there is 1 or 1 million bad properties does not change a thing.

[jonpo]

"Inflation is an insidious enemy of savers but can be the borrower's friend."

not in the UK in The UK inflation of over 2% signals a rise in rates. do you think all thouse people about to loose their homes feel inflation is their freind ?

[laurejon]

I think it is still being missed by many people that interest rates are today still very low.

So leveraging your capital through cheap borrowing, applied to the correct property can deliver a return albeit small.

The difference today, from past recession is that fixed rates are no longer the preserve of bank employees and labour councillors.

I will give an example.

I know someone who has removed the equity in their property entirely (200k) borrowed at a fixed rate of 3.8% two years ago. The fixed rate period is thee years. They then invested the monies overseas in a term deposit (3years) paying 6.3%.

When the term is up they will simply push the money back onto their mortgage that will come out of the fixed rate at the same time, so no penalty.

The beauty is that the monies overseas are Tax Free!!!!.

[It is different this time]

I have just given you an example (and I had already provided an example in my original post anyway).

The answer is simple: do not buy that property in Brighton. What are you trying to prove?! That there are bad properties that if you buy for BTL you are going to lose money on them?! Yeah, I agree, this is true. This does not mean anything however!

You need to do you maths and buy a property that has a positive yield. I have provided one example of it I found in 5 minutes. I am sure if you spend more time and attend auctions etc.. you can find even better and more profitable deals.

You are getting boring. You can provide us another 100 example of bad properties but you would be wasting your time, as I have told you already:

as long as there are some properties (even if very few) that are good for BTL then BTL can still be profitable. The fact that there is 1 or 1 million bad properties does not change a thing.

Cleary, either you don't know what you are talking about or you are spinning the facts to cover your failure of finding a decent BTL investment that is profitable.

I am talking about city flats that are changing hands as investment at the loss of tens of thousands of pounds a year and you are giving me an example of, probably, ex-council house in the suburbs of Leeds.

How many BTL homes are there in that street? You would be lucky to find one but probably 50% development, where the flats I mentioned, are owned by the investors or speculators and they are clearly losing money.

I suggest you stop comparing apples to oranges in order to spin the fact that today’s BTL’ers are losing money and their only hope is the speculation of future HPI. I did give you a couple of real investment properties that are waste of time. The answer is not that simple, "don't buy that property in Brighton" it doesn't work like that. Those amateurs are buying them in the hope of future HPI when that fails, they will dump them on the market quicker than you can finish your pint, then house of cards will fall.

I have no intention of replying to your spins anymore until you provide me a link of real investment property that is now being bought to let and is profitable in today's market. If you can do that figure by figure, as I did, we'll talk if you can't do that I suggest you keep your spin to yourself. Let us know how many Leeds City centre flats are changing hands as BTL and how much profit they are making today!

[polionamen]

I am hearing BTLers are subsidising rents.

It is true on the most recent purchases.

Say the rent is £1000 and the mortgage £1200 on a £200,000 property

For a lot of people, they understand they are paying £200 per month over 20 years to get a final value of £200,000.

Actually, putting aside £200 per month at 6% yields you less than half this sum over 20 years.

By investing in this property, your actual return is above 12% for a fairly low risk asset.

So it still makes a lot of sense to invest in property as it is a leveraged investment.

[Tommy]

not in the UK in The UK inflation of over 2% signals a rise in rates. do you think all thouse people about to loose their homes feel inflation is their freind ?

Take inflation by itself please: friend of borrowers, enemy of savers.

Now, take interest rates by themselves please: friend of savers and enemy of borrowers.

Given the fact that we already have high interest rates (which is bad for borrowers) I have said that at least moderatly high inflation (which we also have) is good for borrowers. People were saying that because of high interest rates the situation for borrowers was bad and I have said, yeah, but consider that IR are high because of high inflation and inflation is good for borrowers.

then you tell me that the two come together... you have told me nothing new.

[Tommy]

Cleary, either you don't know what you are talking about or you are spinning the facts to cover your failure of finding a decent BTL investment that is profitable.

here we are again....

I have shown you a good BTL investment and I do not want to waste my time showing you more.

I am talking about city flats that are changing hands as investment at the loss of tens of thousands of pounds a year and you are giving me an example of, probably, ex-council house in the suburbs of Leeds.

Of course there are... bad investments. You can lose money on stocks, but if you lose it does not mean that stocks in general are performing badly, you just picked the wrong ones. City flats in Leeds are now too expensive to be profitable. They cost a lot, they have service charges and they rent for just a little bit more than ones away from the city centre. You should not buy yet another empty flat in Leeds.

If ex-council houses in the suburbs are more profitable, yes, you should buy them, what is wrong with them? and what is wrong with you!?

How many BTL homes are there in that street? You would be lucky to find one but probably 50% development, where the flats I mentioned, are owned by the investors or speculators and they are clearly losing money.

You should never buy all the properties in the same street, diversification is the key to reduce risks. So there is probably only one or two in that street. You buy two and then if you have other cash, then you can buy some in Armley (good parts), some in Wortley, some in Stanningley, they all have similar prices and similar good investments. There are many many many properties like the one I have shown you.

I suggest you stop comparing apples to oranges in order to spin the fact that today’s BTL’ers are losing money and their only hope is the speculation of future HPI. I did give you a couple of real investment properties that are waste of time. The answer is not that simple, "don't buy that property in Brighton" it doesn't work like that. Those amateurs are buying them in the hope of future HPI when that fails, they will dump them on the market quicker than you can finish your pint, then house of cards will fall.

You are tiring me. You keep saying the same. If ameteurs are making mistakes and are buying bad properties they are going to lose money. So?! BTL can still be profitable if you are just a tiny bit smarter than that. Do not buy that property in Brighton, do not buy a 150k 1 bed apartment in leeds city centre in a block where 90% will be for BTL and you'll be competing with other landlords. Buy instead a property that is profitable. There is still plenty of them. You jsut need to do a simple maths.

I have no intention of replying to your spins anymore until you provide me a link of real investment property that is now being bought to let and is profitable in today's market. If you can do that figure by figure, as I did, we'll talk if you can't do that I suggest you keep your spin to yourself. Let us know how many Leeds City centre flats are changing hands as BTL and how much profit they are making today!

Good, I am really tired of your posts!

I have provided you a real investment property, I am sure there is better ones, but that is already acceptable and can yield decent returns.

Why do you keep asking about Leeds City centre flats?! Why can't you buy 10 minutes away from the city centre.

Yeah, many flats in the city centre are empty, yes if you buy one now you probably have negative yield, yes they are building a huge number of them, so?! Let other people if they are prepared to lose money, you should buy only where profitable. This is obvious, I do not know why you do not understand.

If you want to buy only city centre apartments, then it's you bloody fault and problem. 4 years ago it was a good time to buy in leeds city centre, now it's not.

[oblomov]

In the leeds area there are apartments that sell for about 100k and can be rented out at 550 partly furnished (a few houndred pounds at Ikea!).

So the BTLer would put 20% deposit down: 20k and would borrow the remaining 80k.

The interested only mortgage on 80k would be 4.4k a year at 5.5%.

550 rent times 12 months is 6600. Take out 2 months of void period: 5500. Take out 50 pounds a month of service charges: 5k a year.

For this example I assume that the flat is not rented via an agency.

The result is that you've put 20k down and you are earning 5k (rent) - 4.4k (interests on the 80k). So you've made 600 pounds, this is 3%.

I agree this is bad and to get this you have to go through a lot of hassle! A few years ago the same place would cost 60k and the rent would be 500 and it so it used to be much better. Now on rents you're not making money... you are right, but...

Now, this is where the leverage from the debt comes in:

Assuming house prices cannot increase anymore above inflation because they have kind of peaked, let's say they keep growing at 1.5% a year (this is a bull's or neither's view of course). Now 1.5% of 100k (property value) is 1.5k. But you've only put 20k down, so 1.5k is 7.5% (and not just 1.5%).

Now, let's add all together:

- 600 pounds made from rents

- 1500 pounds made from HP index

This is 2100 pounds which is 10.5% !

should you not deduct the lost interest on the 20k deposit?

£20k @ 5%=£1k

so net profit ...£2100 - £1k=£1100

i.e. about 5%

re: interest rates

why lend to a BTL "investor" @ 5.5% when the same is available on the overnight money markets literally risk free?

[moneymad]

Let us know how many Leeds City centre flats are changing hands as BTL and how much profit they are making today!

1 type of property and 1 location is hardly representative is it? Or can we show examples from all property types and areas?

And from you earlier post.....

Quote:

Purchase price: £250K

Now time to put it on the market to let.

http://www.rightmove.co.uk/viewdetails-154...4&tr_t=rent

Rent: £850pm (Please note all happening today not in 1998)

Gross yield: 4% (remember you don’t think 6.30% is a good enough investment)

Void: £850 (One month’s rent usually 2 but never mind) Who decides the void periods? I think it is legal to let a property for a whole 12months, perhaps i should check!

Management fee: £1020 (10%) What if you mange it yourself? 0%

Insurance & Maintenance: £1800 (£150pm) FXXK me!! Flats aren't really my thing but is this made up? Insurance is unavoidable (about £400?/year) but maintenance is very subjective, if you spending £30/week on maintaining a property, esp a new build, then somethings wrong.

Total cost: £3670pa So in my humble lowlife scumbag opinion this could be less than £1000/year.

Rent received : £10200

Cost: £ 3670

Net: £6530 as it stands his yield is 2.6% Net £9200, still not brilliant.

You don’t think 2.6% return on £250K investment good enough do you? You wish you did! We have not finished yet my friend. Average BTL interest rate is 6% that means £250K @ 6% for 25 years;

IO Mortgage: £1250 100% mortgage!! Thought purchase price was £250k so wouldn't 80% LTV be more realistic? IO mortgage = £1000/month. Wouldn't argue about the 6% though.

Repayment: £1629!

Let's now do the figures again with our LL chipping in a whopping £400pm to be able to pay the mortgage Now only chipping in a paltrey £150/month

Mortgage cost: £15000pm (just IO) Or £12000

Annual cost of BTL: £3670 Or £1000

Total cost: £18670 Or £13000

Annual rent received: £10200

Landlord's year end return: -£8470 -£2800

You'll no doubt quickly point out that my figures are wrong which i concede they maybe but can you prove yours as factual? But you don't have to because you're a bear and i'm a bull so on here that makes you right and me wrong!

I empathize with the point tommy was trying to make because there are a lot of bears who seem to have a pathological hatred of BTL (you know who you are, RB!) as an investment choice, if it was a moral issue i could understand more but to wish finacial hardship upon someone becasue their investment choice is different to yours seems a little peculiar to me.

That aside, that property looks like a sound investment to me!! Only joking it's pants!

[moneymad]

I love this thread

Tommy - fortunately for the residents of Leeds, this part of the UK along with Nottingham has experienced the lowest level of bubble activity of all the major towns and cities within the United Kingdom - you could not have chosen a worse example for your argument.

Since 1997, the ratio of median house price to median income in Leeds has increased by 'only' 83% (the same as Nottingham). My area has seen more speculative activity and has seen this ratio increase by 133% in the same time - Brighton has seen the ratio increase by 142%. This is what I wrote the other week after calculating the percentage increases in the ratio to identify what areas were experiencing the biggest bubble activity through speculation:

Original post here:

http://www.housepricecrash.co.uk/forum/ind...leeds&st=15

Table 577 from where I took the data can be found here:

http://www.communities.gov.uk/index.asp?id=1156110

Your view might be a little distorted because of what you are seeing in Leeds, but this area appears to have seen the least amount of speculation (taking the property market as a whole) and would probably suffer some of the lowest drops of any area in the UK should prices crash. For anyone who is mad enough to still want to buy property - Leeds could be the lowest risk.

I can ask how you worked this out? Put it simply please! Ta.

[laurejon]

I am hearing BTLers are subsidising rents.

It is true on the most recent purchases.

Say the rent is £1000 and the mortgage £1200 on a £200,000 property

For a lot of people, they understand they are paying £200 per month over 20 years to get a final value of £200,000.

Actually, putting aside £200 per month at 6% yields you less than half this sum over 20 years.

By investing in this property, your actual return is above 12% for a fairly low risk asset.

So it still makes a lot of sense to invest in property as it is a leveraged investment.

Bingo!!!!!!!!!!!

We are finally getting there.

Everyone circumstances are different, as the time to buy can also be different for individuals.

If you currently have a pension that is tanking, that people are helping themselves too (Aka Gordon) it makes prudent sense to execute a long term strategy and invest in a vehicle that we all know will have dips and rises but will always be there.

[It is different this time]

1 type of property and 1 location is hardly representative is it? Or can we show examples from all property types and areas?

Damn I feel like a sh&t magnet when it comes to this topic okey let's start. Nobody is asking for 1 type of property or 1 type of location. I guess you have not read the all thread, the reason I asked about Leeds was because Tommy is from Leeds so he would know his current BTL market. Please be my guest to show examples from all property types and all areas but remember the rule is we are talking about today's market. You have to buy it tomorrow and let it on Saturday! Let's see if you can find a profitable BTL. Good luck.

Void: £850 (One month’s rent usually 2 but never mind) Who decides the void periods? I think it is legal to let a property for a whole 12months, perhaps i should check!

I think it is also legal to let for whole 24 or 36 months but the problem with that is it is not always easy to find a tenant to commit that long. As I said one month's rent is the usual void period however I'll accept your excuse and give you 100% discount. No void for you, after all it is miracle economy!

Management fee: £1020 (10%) What if you mange it yourself? 0%

I believe management fee is the cost many LL can't avoid however I feel generous so you can keep half of the fee or even £520 you can keep.

Insurance & Maintenance: £1800 (£150pm) FXXK me!! Flats aren't really my thing but is this made up? Insurance is unavoidable (about £400?/year) but maintenance is very subjective, if you spending £30/week on maintaining a property, esp a new build, then somethings wrong.

You are a bit tight fisted aren't you? Good job you are not my landlord. Anyway let's give you another 50% discount. So the cost is £900 including insurance. Remember if you are EA you'll have to give me the same discount after crash!

Total cost: £3670pa So in my humble lowlife scumbag opinion this could be less than £1000/year.

Well don't be too tight fisted you'll have to spend more than £1K however with all the summer discounts of £850+£520+900= £2270

so the new picture is

Rent received : £10200

Cost: £ 3670 £1400

Net: £6530 as it stands his yield is 2.6% Net £9200, still not brilliant.

Well we can finally agree on something whether £8K or £9K whatever is left is not brilliant when the mortgage is £15K

IO Mortgage: £1250 100% mortgage!! Thought purchase price was £250k so wouldn't 80% LTV be more realistic? IO mortgage = £1000/month. Wouldn't argue about the 6% though.

Repayment: £1629!

Bingo! This is where you shoot yourself in the foot. Of course 80% LTV is realistic whether it is more or less I can't make comment but what you fail to take into account is 20% deposit will remove your £50K hot cash from your piggy bank! That means you are giving up a risk free return of 6.30% gross and 5.04% net income for your capital. That means you are not better off £250pm by investing in your flat but only measy £40 because you won't have your cake & eat it as you won't make the net interest of £2520 for your capital. It is now tied into your overvalued asset.

Landlord's year end return: -£8470 -£2800

You'll no doubt quickly point out that my figures are wrong which i concede they maybe but can you prove yours as factual? But you don't have to because you're a bear and i'm a bull so on here that makes you right and me wrong!

No I won't point out your figures are wrong as I have already given you 50% discount all my original cost, which I still think, is the reasonable figure but never mind you have your discount in actual fact lets take the average figure of landlord's return. I say -£8470 you say -£2800. So here is the return of today's smart investor, on a whopping £250K investment, -£5635

I hope after all you are not suggesting that I should go & invest in BTL rather than risk free saving account but if you are then I'll have to ask you that "What sort of idiot would borrow £250K and pay out £5635pa each year to keep it going on IO mortgage? at the end of the term the mortgage is still to be paid + the cost of subsidising tenant would cost the landlord another £140K so our smart landlord would have to find £250K after already spending £140K on 1 bed flat. what an investment, please shoot me instead!

I empathize with the point tommy was trying to make because there are a lot of bears who seem to have a pathological hatred of BTL (you know who you are, RB!) as an investment choice, if it was a moral issue i could understand more but to wish finacial hardship upon someone becasue their investment choice is different to yours seems a little peculiar to me.

That aside, that property looks like a sound investment to me!! Only joking it's pants!

You got that one wrong too I am afraid. Why would bears hate BTL? BTL landlords are like charities. They are subsidising today's tenants up to 40% or even more in some cases, however, the problem they have is they have been sold a false promise and they don't like it when proven with the figures.