Sunday, March 4, 2007

Is ARLA culpable?

ARLA review of investment returns

For a geared investment, the Association of Residential Letting Agents (ARLA) are telling people they can make 21.97% a year. Well, who wouldn't if they could? However they are v. selective in their assumptions e.g. exclude letting and maintenance costs and assume average capital appreciation every year of 8.66% pa. ARLA claim to be a professional association for private landlords - but their vested interests leave them open to the charge that they are actually ramping unregulated investment schemes to the unwary leading to a buy-to-let and house price bubble. (by the way, even on their definition of Net Yield, this is now negative. God only knows what it would be if you actually had to take costs into account).

Posted by hotairmail @ 11:47 AM (1454 views)
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5 thoughts on “Is ARLA culpable?

  • I cannot believe that they actually factor in Capital Appreciation !

    Madness. This should not be a factor in going into Buy-to-let – it should be a nice surprise if and when you sell. What should be concerning the investor is the earnings that each property can generate.

    I would say that given that this is factored into their “advertsing” that the ARLA is culpable.

    A colleague of mine recently got rid of his 5 BTL properties – as he was falling behind on mortgage and credit card payments (nutter). The whole experience was painful and nearly landed him in court. He is clearing his remaining debts by ….(wait for it, here is something unusual in these times)… WORKING HARD.

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  • For UK residential property the average nominal return since 1952 is about 9.1% pa – that’s probably where that CA assumption comes from.

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  • disgustedofyork says:

    I find it disturbing that most investment categories; pensions, shares, insurance and savings accounts are highly regulated. How potential returns are stated, projections of future growth and so on have to follow certain rules. You certainly can’t pluck some appealing figure out of thin air and promote this as a typical return. Yet, property, which is let’s face it more an investment vehicle, than a place to live, is lightly regulated. Prehaps the lack of regulation let the market work it’s magic, and out perform heavily regulated investments, as capital can move more freely. Or prehaps the returns are better if you can blatently ramp your own investments. It’s also worth noting, that regulation is usually introduced in response to masive public outcry following finacial distaster and allegations of mis-selling.

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  • Is ARLA capable?

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  • Oh and they don’t take into consideration the effect of general inflation when talking after ‘capital appreciation’ over 5 years: i.e. what is the real rate of return?

    Oh and they forgot about tax (as do many landlords).

    So what is the real net rate of return including relevant costs such as letting agent fees and maintenance?

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