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Buying A Btl In The Next Couple Of Years


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I may well get flamed for this but...

with cash earning virtually zero interest in the bank, what rental yield (annual rent/house price) would tempt you to buy a BTL property in the next year or two?

If house price continue to fall significantly faster than rent, then I would be seriously tempted if I found a good place with rental yield of any where near 10% (provided of course that I could still get a 5 year fixed rate mortgage at around 5-6% ;) ). Note that the average rental yield at the peak of the property boom was about 4-5% so house price would have to fall by about 50% to get to a rental yield of 10%!

Consider the following 5 years BTL investment

House value = £200,000

Deposit = 25% of £200,000 = £50,000

Mortgage = 75% of £200,000 = £150,000

5 Years Fixed Mortgage Rate = 6%

Annual Mortgage payment = £150,000 * 6% = £9,000

Rental yield = 9% (or greater)

Annual Rent = £200,000 * 9% = £18,000

Annual Rent - Annual Mortgage payment = £18,000 - £9,000 = £9,000

BTL runnning cost = approx %20 * Annual Rent = £4,000

Gross Annual Rental Profit = ?£5,000

Assume that because you have brought carefully, 5 years after your purchase, your BTL has increased in value by a total of 10% (i.e. a modest 2% a year).

House value after 5 years = £220,000

Capital Gain =£20,000

Total gain over 5 years on a £50,000 (deposit) investment = £20,000 (capital gain) + 5 (years) *£5,000 (annual rental profit) = £45,000!

These numbers seem quiet appealing to me but, of course, you do have the following risks:

1. Lost of capital value if house price continue to fall and doesn't recover

2. Rental void if you can't find tenants

3. Maintenance of the property

4. Bad tenants/estate agents e.t.c.

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My 2p worth...

Don't bother until we have seen at least 3 or 4 consecutive MOM price rises (i'd go off the HaliWide figures).

That way you are in with a reasonable chance of finding the (nominal price) bottom of the market. It also means that negative YOY figures would still be being reported, thus ensuring you don't have so much competition.

My guess is the above will happen spring 2010 at the earliest.

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I would not want to deprive another human being of a home in which they can raise a family.

no problem - BLrs coming back into the marlket too early (which could be any tyime in the next decade) will simply be subsidising families who rent from them instead.

it just spreads the risk, otherwise where would I live whilst I am waiting for prices to become reasonable?

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I would not want to deprive another human being of a home in which they can raise a family.

Agreed, it's one of the most antisocial investments you can make.

Why not put the money into a set of companies that all pay out a reasonable dividend each year? End result is pretty much the same as BTL, with much less hassle, the ability to sell up at a moment's notice, and in a way that helps to provide employment for your fellow human beings rather than helping to artifically inflate the price of their shelter far beyond their means?

I think BTL'ers must have some sort of sociopathic tendencies, it's the only explanation.

If you'd like to know more about investing for the dividends, I recommend this website: http://www.thedividendguyblog.com/

Like house prices, solid stocks tend to rise in line with inflation over the very long term (20+ years), so the dividend is effectively your post-inflation bonus on top of that. If you want to avoid tax (one of the main reasons that people get into property), there are plenty of pension funds out there and ISAs that will let you keep it locked-up tax-free until you retire.

It's a very similar option to housing with none of the moral problems (lets face it, HPI has recently caused our economy to collapse... will you feel comfortable with contributing towards the rot at the heart of our society?)... the only reason most people get into housing is because they're a bit thick and don't understand how all that complicated stocks and shares stuff works.

Edited by DementedTuna
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Guest Mr Parry
Agreed, it's one of the most antisocial investments you can make.

Why not put the money into a set of companies that all pay out a reasonable dividend each year? End result is pretty much the same as BTL, with much less hassle, the ability to sell up at a moment's notice, and in a way that helps to provide employment for your fellow human beings rather than helping to artifically inflate the price of their shelter far beyond their means?

I think BTL'ers must have some sort of sociopathic tendencies, it's the only explanation.

Like all human needs, any commodity, houses are an investment tool.

Horrible I know.

But don't blame the OP, blame the PM, who as Chancellor destroyed the private pensions option, depriving UK industry of real investment and you guys of affordable homes.

BTW, I have attached 'The Tank!' for your use.

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IMHO we'll see a boost in folk (with a reasonable amount of savings) 'having a go' at investing in the shittier end of every town's housing stock over the next few years. Friend of mine getting 13% yields in Liverpool for properties bought in 2002. If you want to feel ethical about it perhaps investing in newly built empty towers in a few years could be it, already seeing 50-60% off at auction. There has to be an acceptance that as a society we need a mixture of rental and owned property.

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with cash earning virtually zero interest in the bank, what rental yield (annual rent/house price) would tempt you to buy a BTL property in the next year or two?

My parents are STR on my advice and will eventually buy 2 BTL properties on my advice as their pension.

This will be done when 10% yield is achievable. Because interest rate cuts are hitting them hard I've told them that by the end of next year it will be time to start seriously looking for their BTL properties even though I don't anticipate that to be the bottom of the housing market.

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I may well get flamed for this but...

with cash earning virtually zero interest in the bank, what rental yield (annual rent/house price) would tempt you to buy a BTL property in the next year or two?

If house price continue to fall significantly faster than rent, then I would be seriously tempted if I found a good place with rental yield of any where near 10% (provided of course that I could still get a 5 year fixed rate mortgage at around 5-6% ;) ). Note that the average rental yield at the peak of the property boom was about 4-5% so house price would have to fall by about 50% to get to a rental yield of 10%!

Consider the following 5 years BTL investment

House value = £200,000

Deposit = 25% of £200,000 = £50,000

Mortgage = 75% of £200,000 = £150,000

5 Years Fixed Mortgage Rate = 6%

Annual Mortgage payment = £150,000 * 6% = £9,000

Rental yield = 9% (or greater)

Annual Rent = £200,000 * 9% = £18,000

Annual Rent - Annual Mortgage payment = £18,000 - £9,000 = £9,000

BTL runnning cost = approx %20 * Annual Rent = £4,000

Gross Annual Rental Profit = ?£5,000

Assume that because you have brought carefully, 5 years after your purchase, your BTL has increased in value by a total of 10% (i.e. a modest 2% a year).

House value after 5 years = £220,000

Capital Gain =£20,000

Total gain over 5 years on a £50,000 (deposit) investment = £20,000 (capital gain) + 5 (years) *£5,000 (annual rental profit) = £45,000!

These numbers seem quiet appealing to me but, of course, you do have the following risks:

1. Lost of capital value if house price continue to fall and doesn't recover

2. Rental void if you can't find tenants

3. Maintenance of the property

4. Bad tenants/estate agents e.t.c.

What you will find, as the economy continues to fall of the rails, is that your % assumption for house values versus rental won't work. Rentals get crushed on expensive property in a recession, think about where the tenant paying £1000 per month is coming from. Here's some real examples in my neck of the woods; 400-750K houses difficult to rent out for 700-1200 quid a month. 200K houses renting for 500-600 per month. 50K houses (in stabsville) getting 300-400 per month. Want a return in stabsville? very soon lenders won't touch it unless you've got 50% deposit. IMHO it's only the landlord investors prepared to roll sleeves up and 'do the job' in the sharper end/shittier end that'll make a good return and limit losses before they see an upswing in values. And they'll need a lot of up front cash to make it work

And forget the capital gains in your equations/calculations. Think Japan's 20 year house price falls/stagnation.

Edited by Converted Lurker
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I would not want to deprive another human being of a home in which they can raise a family.

What a nonsensical response. How does it deprive anyone of a home. The house still exists and someone can still live in it. It hasn't disappeared or been taken out of use. All it means is that someone can rent it. There are advantages to renting as you will see if you read posts on this site. Indeed lots of people prefer to rent because it gives them more mobility, its less expensive than buying, the worries of maintenance are someone else's responsibility, and so on.

Extending your argument housing associations, local housing authorities, are depriving other human beings of a home in which they can raise a family.

No wonder your angry. Nah! you can't be that stupid you must just be trying to provoke a response, mustn't you?

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What a nonsensical response. How does it deprive anyone of a home. The house still exists and someone can still live in it. It hasn't disappeared or been taken out of use. All it means is that someone can rent it. There are advantages to renting as you will see if you read posts on this site. Indeed lots of people prefer to rent because it gives them more mobility, its less expensive than buying, the worries of maintenance are someone else's responsibility, and so on.

Extending your argument housing associations, local housing authorities, are depriving other human beings of a home in which they can raise a family.

No wonder your angry. Nah! you can't be that stupid you must just be trying to provoke a response, mustn't you?

You seem like a wise individual... would you like to buy a Tulip from me?

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You seem like a wise individual... would you like to buy a Tulip from me?

Another stupid response. When a house is built it is an investment in a structure for someone to live in, and raise a family if they choose. It will normally last longer than an individuals life span, it is an investment. It meets the economists definition of a productive utilisation of capital. Property has been used as an investment since time immemorial. Unlike a tulip bulb a building will probably last longer than you.

Throughout the ages property values have kept pace with inflation and are likely to continue to do so. And will until there is a fall in population growth. But I guess demographic trends are not your strong point. From time to time investment bubbles form, as happened to property recently. How long will the bubble take to deflate and how much will it deflate. Who knows. We'll only know when the low point was after the event. For all your wisdom we could be at the bottom now. Whatever! What I can predict with absolute certainty is that property will eventually revert to the long term trend. With all investments timing is key. I guess people were thinking much the same as you in 1991.

The original comment was that buying a house deprived another human being of a home in which to raise a family. Please explain to me how that is the case.

Edited by sleepwello'nights
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In the last few months I have become quite disillusioned with the stock market.

With antics like short selling, naked short selling, and people owning more than a 100% of the shares in company. To trust your money to these city boys is like giving your money to a den of thieves. We have billions o pounds of are pensions with them and they will try anything they can to get that money into their pockets. At lest with BTL you live or die by your own hand.

iforgot to add insider dealing to the list

Edited by gf3
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Another stupid response. When a house is built it is an investment in a structure for someone to live in, and raise a family if they choose. It will normally last longer than an individuals life span, it is an investment. It meets the economists definition of a productive utilisation of capital. Property has been used as an investment since time immemorial. Unlike a tulip bulb a building will probably last longer than you.

Throughout the ages property values have kept pace with inflation and are likely to continue to do so. And will until there is a fall in population growth. But I guess demographic trends are not your strong point. From time to time investment bubbles form, as happened to property recently. How long will the bubble take to deflate and how much will it deflate. Who knows. We'll only know when the low point was after the event. For all your wisdom we could be at the bottom now. Whatever! What I can predict with absolute certainty is that property will eventually revert to the long term trend. With all investments timing is key. I guess people were thinking much the same as you in 1991.

The original comment was that buying a house deprived another human being of a home in which to raise a family. Please explain to me how that is the case.

You're relying on the idea that we won't experience population deflation. We certainly have had periods of considerable population loss in the past. That and social change can certainly destroy the idea of domestic property as an investment.

In the long term I think it's been shown the property only performs as well as the stock market. So you only really will make serious money when you identify bubble moments.

Good economies to my mind rely on people investing (not gambling) on shares, so that companies can invest themselves in research and development into worthwhile products that bring some real benefit to their populations. Bad economies lure people into investing and sacrificing time and capital into essentially non productive assets.

I think we'd have a much stronger economy if house pricing was nearer the long term average for those who want to settle in an area. This would mean that they could have more of their own disposable income each month to spend or invest on economically productive things, like education for their children. I would also think much cheaper and secure rental housing made available to keep a mobile workforce would be beneficial to the economy. It seems paradoxical that we tie people down for long term debt, when at the same time since Norman Tebbit the population have been told to get on their bikes and find work. That's pretty hard to do if there isn't anywhere affordable to live.

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Consider the following 5 years BTL investment

House value = £200,000

Deposit = 25% of £200,000 = £50,000

Mortgage = 75% of £200,000 = £150,000

5 Years Fixed Mortgage Rate = 6%

Annual Mortgage payment = £150,000 * 6% = £9,000

Rental yield = 9% (or greater)

Annual Rent = £200,000 * 9% = £18,000

Annual Rent - Annual Mortgage payment = £18,000 - £9,000 = £9,000

BTL runnning cost = approx %20 * Annual Rent = £4,000

Gross Annual Rental Profit = ?£5,000

Assume that because you have brought carefully, 5 years after your purchase, your BTL has increased in value by a total of 10% (i.e. a modest 2% a year).

House value after 5 years = £220,000

Capital Gain =£20,000

And where can you get £1500pm rent on a £200k place? We are a long way from being near to that, if it ever happens, sounds more like the kind of things Inside Track used to claim.

I remember being told once that about 9% was required to be a sustainable yield, so your % is probably about right. But for your model to work we need to be right at or near the bottom of the cycle. I think we're still a long way away from "a modest 2% a year" increase in prices, so my money's staying put for now.

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If you're looking for an investment that requires little work and produces strong returns why not put fairy lights and a German Shepherd in your back garden and sell tickets to 'Lapland' on the Internet.

No mention was made about little work and strong returns. At least I can still practise my profession and generate an income.

My stock market investments aren't performing well at the moment either. Particularly banking stocks which were acquired for the high yield and low risk, UK manufacturing sector has underperformed for some time, high tech! builders? Just glad I didn't ask hedge funds to look after my assets. Cash in the bank has looked precarious recently as well, and what will inflation do to it?

But then farm land has done well over the last two years.

Perhaps tulip bulbs are not so bad after all :P

Not sure what this has got to do with the original ridiculous statement though.

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