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I remember just after tech stocks had fallen flat on their @rses how otherwise astute fund managers turned around and said"I thought I'd bought long-term growth stocks but I now realise they were really supercyclicals".

That is, their earnings/profits/share price returns move in cycles and aggressive ones at that - they do VERY well or VERY badly.

I wonder if the same may be true about BTLs too?

I don't have an answer, just wondering if anyone has any interesting input?

I have heard several times from BTLs that rents and house prices are counter-balancing so that when house prices are falling rents will be rising to compensate.

I very much doubt this is true but I can't find any data on rents going back to the last crash to check. My guess is that rents may well have been rising in the last crash but so was everything (we had very high inflation) and that rents were probably rising more slowly than general inflation and so actually falling in real terms.

This seems to me to make logical sense. So, for example, we're starting to hear lots of negative news on consumer spending, jobs, economic growth etc and if the economy deterioriates wage growth is likely to struggle and people's sense of financial security is likely to increase. A tough economic backdrop seems like a time when rents will be under pressure rather than soaring ahead.

Such a hardening economic scenario is consistent with falling house prices but I can't see how it is consistent with rapidly increasing rents. It seems entirely possible to me that rents will stagnate or even fall in such a situation (depending on how bad things get).

If you have a BTL in such a scenario it seems likely to me that you could suffer geared capital losses and a geared fall in rents (as more desperate BTLs compete for business from concerned/insecure renters).

I'm not saying this is how things will play out but it seems possible to me that BTLs hit by geared capital losses might also find the rental income they considered the secure foundation of their investment might prove an added source of problems.

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Guest prudence

any interesting input?

I have heard several times from BTLs that rents and house prices are counter-balancing so that when house prices are falling rents will be rising to compensate.

Yields will certainly rise on falling values even if rents don't..

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BTL can be very lucrative once a supercyclal has started.

I have analysed some 250 transactions using rightmoves sold prices on a new development of luxury flats. Every single one had increased by 50% within a few months due to exceptionally high gearing due to its desirable location. Such high capital gains could mean just buying and not bothering to let it out still making money, Just by buying one or two - you could be retiring now once successfully sold. I am not preaching BTL but some people have made a fortune in a matter of months. We will probably not see the next rich pickings for another ten years anyway <_< .

Examples from a pool of 60+ flats:

(Addresses have been removed)

16 Jan 2003 24 Flat £309,000 LH

26 Apr 2002 24 Flat £205,000 LH NB

21 Mar 2003 45 Flat £320,000 LH

30 Oct 2002 45 Flat £220,000 LH NB

22 Nov 2002 46 Flat £305,000 LH

29 Aug 2002 46 Flat £240,000 LH NB

31 Aug 2004 57 Flat £455,000 LH

09 Aug 2002 57 Flat £300,000 LH NB

06 Mar 2003 64 Flat £549,000 LH

09 Aug 2002 64 Flat £380,000 LH NB

I presume some people have planned do very well out of it, and some, well couldnt believe their luck. While some have bought them really overpriced.

Edited by trev
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Trev,

I agree, it is a phenomenal investment if you are in and out at the right time.

My point is I fear it is a truly dreadful investment if you are in and out at the wrong time... that BTLs in the next couple of years might find themselves suffering a geared capital loss with no rental increases to even partially off-set these losses.

I might be entirely wrong but I think the rental picture might not be as rosy as they suspect if the economy starts to tip over.

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Trev,

I agree, it is a phenomenal investment if you are in and out at the right time.

My point is I fear it is a truly dreadful investment if you are in and out at the wrong time... that BTLs in the next couple of years might find themselves suffering a geared capital loss with no rental increases to even partially off-set these losses.

I might be entirely wrong but I think the rental picture might not be as rosy as they suspect if the economy starts to tip over.

I agree entirely house prices can only go down now- I am just out to save for a starter home, not a BTL empire. But it was just interesting to see how people have made their money. I am feeling a bit dislousioned with this country. Look around you , people are not working but shopping, driving new cars, emigrating, have 3-4 holidays abroad a year. They cant be all doctors and footballers or lottery winners. Neither do I think they are stupid enough to have mewed for it. Would anyone given the chance say no, to making money out of the next bubble - property or not?

Edited by trev
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