Saturday, July 14, 2007
Somewhere over the rainbow??
Buy to let returns 13% over past year
New research from Birmingham Midshires shows that the average total return for a buy to let (BTL) investor was 13.0% over the past year to June 2007 (exclusive of fees and mortgage interest costs). This is up slightly from a total return of 11.9% for the year to June 2006...
Posted by converted lurker @ 09:27 AM (1688 views)
23 thoughts on “Somewhere over the rainbow??”
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paul says:
“(exclusive of fees and mortgage interest costs)”
Great! So as a would-be buy to let investor all I have to do is find a mortgage without interest or mortgage fees and I’ll be RICH RICH RICH!
“Terraced properties also have the lowest prices by property type with an average price of £116,884 for BTL investors at June 2007”
Seems awfully cheap for terraced properties. Is this in somewhere like Stoke (which has seen the value of flats decline by 25% this year)???
uncle chris says:
My goodness, the banks really are getting desperate with their continued “everything is rosey in BTL land, so please don’t cut and run”. The truth in the matter is that the first out will probably be the ones that don’t lose their shirts. All the VIs know that if they lose the BTL market that has kept the market at unsustainable levels now that the FTBs have all but dissapeared, the market is lost. This is why we have relentless publicity campaigns to try and keep the market alive. The problem for them is that the voices of reason (the ones they call the doom-mongers) are getting louder and louder, so expect the publicity to get more and more desperate. This is why releases of this ilk cheer me up, rather than depress me.
converted lurker says:
The bit that killed me and stopped me taking it seriously was the suggestion that the average btl property is worth/cost 142K. Using this as a benchmark skews the whole argument IMHO. The most prolific acquisition year for btl investors was 2006 when, according to the cml and others, 15% of transactions were BTL related. How did these guys beat the market and buy 50K under average prices given the majority of BTL is a southern based phenomena?
Mark says:
i sold all ours last year, i would advise anyone else to do the same, get out while u can
dohousescrashinthewoods says:
Very interesting CL – reminds me of a story I didn’t get round to posting:
About a month ago, I heard a plummy oik at a poncy pub in Guildford greasing up his gushing, big-haired (prospective?) girlfriend, in between profusely earnest bouts of snogging and giggling, (just by my left ear as I was trying to eat my lunch) with exactly that figure of 50K.
She was making nicker-elastic-twanging nioses at the prospect of digging into his easy money and he was clearly lapping up the possibility and the attention, but grossness aside, the story bears repeating.
From what I could gather in between the slurping and cooing and despite the “I’m so cool I can barely be bothered to enunciate” drawl, was that this chap had some connection to a property developer building flats. He reckoned he could get “special price” from the developer (which presumably means the developer is still making a profit) and get flats at 50K below the market value the developer had told him. He then simply had to flip the property, pass Go and collect a fortune.
There are several angles you can read into that, including “the guy got lied to, exaggerated to get laid and, if he ever did give it a go, would brobably find himself bankrupt in a matter of weeks”. However, there is a possibility that you have developer -> flipper -> BTL -> tenant as a food chain and this may be how the money is made, with each one buying slightly less under market value and the tenant expected to subsidise the lot.
I wonder if there will be a CDO-like revaluing when these flats hit a more discerning market. Will we find out that it was the developer who sold at the true market price and made a profit, leaving the flipper with a few commissions and a couple of liabilities and the BTL in negative equity across their portfolio – because fair value was less that the supposedly-reduced price they paid. They belatedly realise that in fact they have no “cushion of equity”, just a bed of negative nails because they actually bought over the odds. To add insult to injury, tenents will probably refuse to pay the rent the BTL needs to stay solvent. Then only the “in-it-for-the-long-term” cooings of VIs stand between them and bankruptcy – and that is no protection.
Scott says:
Hi guys. I know this may be a bit off subject but I think if all you need to worry about is the price of property then you must all be doing relatively okay. I say this because I found out today that someone who I went school with committed suicide a few days ago. He was 23 and he has a younger brother aged 10.
Anyway, the crash will happen, be patient, but do not let it become your life. Worse things can happen.
little professor says:
Orwell says:
That’s a great Shame Scott. It’s particularly bad when you know the person but taking your own life is always very sad…I don’t think that people talk enough today, and the problem has been made worse by paranoia and obsession with these house prices and salary and jobs etc…etc…pathetic people today. No time for anyone including your poor friend…I feel very sorry for his family and his brother in particular.
planning4acrash says:
Are those returns from sales of properties?!
confused76 says:
Scott,
very sorry to hear the bad news
Guys,
There are people that have made gazillions over the past couple of years. Here in Notting Hill /London, many folks that have recently sold property bought in 2005 have made returns of 80%, which – leveraged with 70% debt – means a return of 267%!! on the capital invested.
To me average 10% returns on asset is quite plausible as UK average.
Ok, skilled or lucky, shitload of money has been made. What we are debating here is: will more of that money be made? Is there a chance that money can be lost?
George Sore Ass says:
dohousescrashinthewoods, Guildford pubs are full of these kinds of people (I was born in Guildford and have spent a lot of time there). In less well-off areas, the phenomenon normally takes the shape of shell-suited oiks telling their mate how they used to be in the SAS or the foreign legion and are going to kick such and such’s f**king head in. I always find it amusing at closing time when the fat, middle aged publican comes round and tells them rather impolitely to leave and despite comments under his breath the chap doesn’t respond with a judo chop, vulcan deathgrip or other SAS-inspired move, but instead just shuffles off to the kebab shop without maiming anyone.
The Capitalist says:
Confused – the flipside of selling for vast profit is that someone has bought said home (with the aid of vast debt) – wealth creation this is not (compared to say making cars and selling them for a profit whilst employing lots of people)…this may explain the empire of debt we now inhabit.
David20040_0 says:
Kinda shows that BTL was and probably still is a good investment, 9% is awesome.
uncle chris says:
The only thing we can be sure of is that someone is going to lose alot of money, and sadly it will probably be the ones ‘duped’ into paying over the odds by the barrage of VI propaganda, which may well include a host of inexperienced (jumped on the band-wagon too late) BTL’s. Incidentally, a friend of a friend on the Wirral who was a wannabe property tycoon and once boasted to me about how much ‘easy’ money he was making has just gone belly-up (i.e. declared himself bankrupt). It seems he overexposed himself to Liverpool flats, whilst spending a great deal of money (he probably didn’t have) trying to maintain an illusion of wealth – including a brand new BMW X5, and a stateroom cruise on the QM2. Sad thing is, he will probably be in business again in just over a year under GB’s lax bankruptcy laws, a back to his lavish lifestyle funded by credit.
uncle chris says:
p.s. Scott, sorry about the bad news. We’re a little concerned about my brother-in-law (now 25), who seems to be getting more and more depressed after failing to get any form ‘graduate’ job, now 3 years on from leaving University. He had such high hopes when he started, and was only the second person in the family ever to attend University. Now he cannot get more than a part-time job at the local swimming pool, cannot afford a car and has no hope of affording his own home and settling down with a family. Education, education, education eh Mr Bliar – what’s the point? Why not just be honest (ok maybe not possible with Bliar) and tell the majority to get a decent trade and not go chasing rainbows and mirages at University, when the quite clearly isn’t the demand.
Getting off soap-box now – sorry!
enuii says:
Interesting quote from former director of the BBC in the aftermath of the BBC’s huge fook up editing footage of the queen which may have more than a grain of truth when applied to the UK housing and newspaper industries etc as well.
“Former BBC chairman Michael Grade, who now runs ITV, told the Today programme he saw a wider problem in broadcasting because an influx of young, inexperienced people.
“We are in an age today where there has been a huge influx of young talent into the industry as it expands. They have not been trained properly, they don’t understand that you do not lie to audiences at any time, in any show – whether it’s news or whether it’s a quiz show … It’s desperately important that we restore trust and that the programme-makers get to understand – whether through hard lessons or through training or a combination of both – that you do not lie to audiences under any circumstances.”
Looks like this sort of thing is rampant in every part of UK plc these days, especially where there is a quick buck or bit of publicity to be made by those who only care about themselves!
planning4acrash says:
Uncle Chris. The graduate market is indeed extremely tight at the moment, possibly for economic reasons in part, but also because today’s BA’s are yesterday’s A-levels. Its qualification inflation as a result of the number of graduates, much like how liquidity has caused house price inflation!
I can offer two kernals of advice from my experience:
a) See if any of you guys can encourage and support him to do a 1-3month not paid or pitfully low paid voluntary work/internship in his chosen field, whatever it may be. Pimping yourself to a career does pay off. I worked for my first 3 months, actually loosing a couple hundred quid a month to get the experience, got promoted to a comfortable job and wage just as the money ran out!
b) Encourage him to do an MSc in something he really wants to do, if the funding can be found (ideally after getting some experience of it, even if that’s just a week or so shadowing somebody). Today’s MSc’s are yesterday’s top class BA’s. I borrowed about 5k from my folks to do an MSc and it paid back within the first year, I paid him 80 quid a week for about a yr to pay him back and now have a career and can get a job in a day, unlike other friends who have to apply for hundreds of jobs to get an answer.
bidin'matime says:
Scott – sorry to hear about your brother in law. I’ve got a son of 23 who doesn’t seem to know what to do. Jumps from one job to another. Many, many years off buying a house. I do worry about the youngsters – my hope is that, by seeing that we have sold our house and are relaxed about renting, our sons will be relaxed too and will not feel any of the pressure that so many must get from their parents and their peers, to ‘get on the housing ladder’. Having owned a house from age 22 to age 49, it seemed really weird to make the break, but I don’t see us buying again for some years to come – I just wish everyone else could ‘chill out’ and enjoy life for what it is. Then things would return to normal.
Wwiae says:
A few observations on the various points raised in this thread. My son and his wife are currently renting a 3 year old 3 bedroom town house on a large developement in Bishops Stortford – 50 minute commute to London. Son was in conversation with his neighbour who is trying to sell his house having bought it new from the developer. It transpires that a BTL speculator bought a whole block from the developer at a 30% discount. The BTL speculator is now selling off the properties at just above the discounted price he paid. Neighbour is very depressed as he stands to lose around 50K if he sells at the same price.
planning4acrash says:
Bidin matime, that’s exactly where I am. The problem is, that, even though I’ve got a decent job, and earn more than the average household, I can only just stretch to buy a bed sit. I know this isn’t sustainable, and gives me time to save up a bigger deposit, but I want a home and may even want a family. These things are all out of our reach at the moment. It is obvious to me that prices must eventually go down to a level where first time buyers can purchase, once/if BTL’rs F*&K off, but its a frustrating time and I often think, what’s the point of all this work, when all I’ve got to see for it is a modest savings account (loosin value to inflation) and a leased flat that will never be mine. At the moment, even if you have the career you can’t get settled. But its useful being aware of cycles and realising that right now, is a good time to save and study/travel/gain good work experience, going against the tide basically, because, when asset prices fall, those savings will suddenly be worth a lot, at which time, buying will be good, at the time when everybody else is selling. But I do feel like my life’s on hold a bit at the moment!
converted lurker says:
Planning4acrash and others; what always gets me is just how quick this ‘generational shift’ of wealth has happened. HPI has completely altered the landscape of opportunity for a generation seemingly overnight (well 10 years, which in terms of how long society has evolved, is a blink of an eye).
planning4acrash says:
If history is anything to go by, the fall will be faster than the rise. The people I feel sorry are those in their mid-30’s who will bear the bunt of the fall out. There was a transfer of wealth from middle aged people to older people, as they paid their parents above the odds for property, and now, to add insult to injury, there will be a transfer of wealth from those middle aged people to FTB’s, as they buy overvalued properties at bargain prices!
planning4acrash says:
Either that, or it could be considered that middle aged people have been a vehicle for evaporating the excess liquidity of their parents, who are living the life of Riley!