Thursday, April 12, 2007

What’s that quote; “a long term investment is a short one gone bad”?

Buy to let investors are "in it for the long term"

Buy to Let investors borrow an average of 73% of the purchase price for their property investments, while a sizeable minority, one in eight, borrow less than half. Over 40% of these investors buy properties that are over 50 years old and less than a fifth buy new build. On average, investors expect to keep their properties for nearly 17 years...

Posted by converted lurker @ 01:53 PM (523 views)
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7 thoughts on “What’s that quote; “a long term investment is a short one gone bad”?

  • I am afraid to say that the BTL’s aren’t going to bail out that easily unless there is a big crash. I doubt very much they will cause it by cashing in. I know at least 4 of them with about 20 between them and they can easily cover the payments on mortgages in the short term if not rented and a drop in capital value wont stop them living well… ie they are rich b**stards anyway. Remember a drop as well as rise is still only paper money. What is more having to pay 40-30% Capital gains is a big dis incentive to sell. I fear the problem will come in many years time when they start thinking of drawing on these properties as pensions. 20 years from now who knows.

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  • I don’t think that any government will consider getting rid of CGT, and if BTLers should have factored that in when they bought the place. – also most people will find ways to avoid it. – it’s actually very easy – sell the house you are in – cash that in – then ‘move’ into the flat register council tax there then live there for 18 months then sell it as your ‘home’ – now suppose you have more than one property in more than one borough?

    all my BTLing mates are doing this or planning on doing it. i would certainly do it.

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  • The Baldman says:

    I believe it depends on the economic climate. Noone can hold on to a loss making investment if they suddenly find they have no job.

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  • ..Remember that the market is dependant on the BTL brigade buying those houses that would-be FTB’s can’t afford – over 100,000 more every year, – and growing..

    With rising interest rates, and house price inflation running way ahead of rental inflation, houses now have to show capital growth of around 8% to keep the BTL’s onside and buying.

    This cannot go on for ever, and the longer it does go on, the greater the gulf between rental income and interest payments and so the greater the capital growth needed – in other words,it’s a spiralling scenario.

    Many BTL investers can only make ends meet by releasing equity from the properties they own. If house prices fail to rise fast enough to support new BTL aquisitions, the market will very quickly stall (as it has in the US) leaving those BTLers with no equity left to release, and obliging them to sell some of their properties into a market that is fresh out of buyers…

    The US is ahead of us here – watch how things unfold across the pond.

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  • Market crashes are all about fear – in fact markets are mostly about fear – the current market madness is driven by the fear of having to pay a higher price for the same property later on. Anyway, once the fear of price rises is replaced by a fear of price falls, the market can collapse. I accept that many BTL owners don’t have to sell to stay solvent, but once they get gripped by the belief that price moves will be downward for the foreseeable future, they will opt for the cash now just like everyone else. Am I sure that the market sentiment will turn? Absolutely! It always has, throughout history. There is no boom that I know of where price have risen and risen and then just leveled off to a new plateau. Markets always overshoot. It’s in their nature. The next question then is: when will the market turn? The short answer is: I don’t know. The scary answer is: “the market can stay irrational longer than you can stay solvent” (- John Maynard Keynes). The comforting answer is: this market is far closer to its top than its bottom. You can not find good value in this market, no matter how hard you try. The only option left is to play the long game. So, sit still and keep your deposit and mortgage approval letter ready. Be patient and opportunities will present themselves to you.

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  • tony marshall says:

    The dot-com boom crashed for no other reason than people changing their minds about values. It doesn’t need any more than that to crash the property market.

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  • Tony, you are right. The .com boom crashed because there was a stampede of managers-shareolders to exercise their call options and quickly dispose of the company stocks. People with insider knowledge timed the exit and managed to cash in, the general public lost money. Like you said, firms’ valuations changed, but in such a dramatic way… following the realization that “the emperor is naked”.
    I tend to disagree with a couple of comments above… in my opinion we do not necessarily need to see the first distressed sales of BTLers for the market to decline. On the contrary, with prospects of much reduced HPI going forward (2-3% per year?) and thin rental yields, there will be a strong incentive for the early BTLers (who bought so cheap) to “take profit”. And they will not care whether they sell for 3% or 4% less than the asking price, since they stand to make 150-200% capital gains anyway.
    These small “price erosions” will then take the marginal BTLers into a loss or even negative equity… a crash will follow.
    I am talking from experience having followed the market in SanFrancisco and Boston (prices are down 15-20% against the 2004 peak)

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