Buy to Let now...or wait a year??

IveSeenTheLight

Dithering_Dad wrote: »

Here is the info replicated:

Mar 02 to 03 : -29.51% (ouch!)
Mar 03 to 04: +29.87 (wow, a 100% recovery in a year - I'd like to see housing do that!

Hers is some data on the average house price in Aberdeen over the years.
While 1993 didn't fully recover in 1994, the 1993 drops were less than the gains in 1992.
You will see in 1996 & 2001, the average house prices did recover from drops within a year and in some areas it can be done.

Annual Data – 1989 £45,881 9.17%
Annual Data – 1990 £59,112 28.84%
Annual Data – 1991 £65,060 10.06%
Annual Data – 1992 £72,447 11.35%
Annual Data – 1993 £65,869 -9.08%
Annual Data – 1994 £69,050 4.83%
Annual Data – 1995 £65,640 -4.94%
Annual Data – 1996 £71,948 9.61%
Annual Data – 1997 £73,037 1.51%
Annual Data – 1998 £79,022 8.19%
Annual Data – 1999 £83,656 5.86%
Annual Data – 2000 £78,390 -6.29%
Annual Data – 2001 £84,845 8.23%

smartn

Dithering_Dad wrote: »

They're not statistics, they're actual real returns from a tracker fund. The problem with looking at the FTSE 100 is that there are only 100 UK companies in there and so it's not providing a decent spread of industries and there is certainly no geographical spread as they're all UK listed companies.

I certainly wouldn't invest in a ftse 100 tracker, that's for sure.

Well, the reality is the FTSE 100 and FTSE all share seem to perform pretty much identically. But the principle is the same for the DOW, take a look at this :-

http://www.cornerstoneri.com/Research/100yearchart.pdf

It's rather interesting and illustrates that you get your timing wrong with stock market investments even over a period of say 20 years and you can be in real trouble. Who knows what the future holds, but I base my stock market returns on a low 7% and I think 10% would be lovely but is somewhat unrealistic (great if it happens though and for what its worth I think we are looking at a good buying opportunity in stocks at the moment).

I agree with a lot of what you say and have found this thread very interesting (I could never work out why anyone would get in to buy to let over the last few years either), but I just woudn't want anyone to think they are pretty much guaranteed to get a 10% return from stocks, because over the last 15 years this would not have happened.

JonnyBravo

Dithering_Dad wrote: »

I'm happy for anyone to provide me with real data, I've done it with ISAs but yet no one has posted any BTL figures. Is this because they don't stand up to scrutiny?

I'm not so soft as to be investing in something that doesn't "stack up" but you'll just have to take my word for it as I won't be providing any real detail! Sorry DD but obviously I don't know you from Adam. (you could be !!!!!!? in disguise )



p.s. I bought in '98 which is a good hint as to why it works for me

Jonbvn

Returns on the L&G UK Index Trust (R) Acc from morningstar

3 Years Annualised 1.40
5 Years Annualised 7.09
10 Years Annualised 3.43

Starting with GBP1000 in 1998, you get the following returns (graph won't show on here):
In 2002 worth around GBP800
In 2007 worth around GBP1800.
Currently worth around GBP1400.

Dithering_Dad

IveSeenTheLight wrote: »

Hers is some data on the average house price in Aberdeen over the years.
While 1993 didn't fully recover in 1994, the 1993 drops were less than the gains in 1992.
You will see in 1996 & 2001, the average house prices did recover from drops within a year and in some areas it can be done.

Annual Data – 1989 £45,881 9.17%
Annual Data – 1990 £59,112 28.84%
Annual Data – 1991 £65,060 10.06%
Annual Data – 1992 £72,447 11.35%
Annual Data – 1993 £65,869 -9.08%
Annual Data – 1994 £69,050 4.83%
Annual Data – 1995 £65,640 -4.94%
Annual Data – 1996 £71,948 9.61%
Annual Data – 1997 £73,037 1.51%
Annual Data – 1998 £79,022 8.19%
Annual Data – 1999 £83,656 5.86%
Annual Data – 2000 £78,390 -6.29%
Annual Data – 2001 £84,845 8.23%

but, but, I thought the mantra of the BTLer was that HPI doesn't matter, it's the rental yield! Now we seem to be relying on HPI to make a profit. I'd certainly liek to see how the next 5 years affect the HPI figures as opposed to how the stockmarket does in that time

Anyway, you can't use those gains unless you MEW or sell the house and both have an impact in terms of mortgage arrangement fees, and capital gains taxes, estate agent costs, valuation fees, legal costs, etc.

A final point (because I think there are entrenched view - including mine - that are not going to be changed within this debate) is that if I think the stockmarket is heading towards a crash or it's already starting to crash, I can simply move money into safe government bonds or cash until I think it's bottomed out. Therefore locking in any profits from the good years.

With BTLs if a crash occurs, you're pretty much goosed because you can't sell your property so easily in a falling market. Even in a bouyant market I seem to recall that house selling was a pretty stressful event.

If you do manage to sell your BTL, then you will be charged capital gains tax. If I sell my equity shares within an ISA and move the money into a cash fund there is zero tax implications.

I think what puts me off BTL as an investment vehicle is the fact that such a large proportion of my wealth is locked into a single investment, the wealth is difficult to get at and the process of obtaining the wealth (i.e. being a landlord) is far to involved for my already busy lifestyle.

That's just me though, and I'd say to anyone to do your own research because we are all different.

IveSeenTheLight

Dithering_Dad wrote: »

but, but, I thought the mantra of the BTLer was that HPI doesn't matter, it's the rental yield! Now we seem to be relying on HPI to make a profit. I'd certainly liek to see how the next 5 years affect the HPI figures as opposed to how the stockmarket does in that time

Anyway, you can't use those gains unless you MEW or sell the house and both have an impact in terms of mortgage arrangement fees, and capital gains taxes, estate agent costs, valuation fees, legal costs, etc.

I mention nothing about my rental yields, profitability, relying on HPI, MEW'ing etc.
You said you would like to see house prices recover in a year and I showed you it was possible.
Don't try to twist it into something different

smartn

Dithering_Dad wrote: »

but, but, I thought the mantra of the BTLer was that HPI doesn't matter, it's the rental yield! Now we seem to be relying on HPI to make a profit. I'd certainly liek to see how the next 5 years affect the HPI figures as opposed to how the stockmarket does in that time

Anyway, you can't use those gains unless you MEW or sell the house and both have an impact in terms of mortgage arrangement fees, and capital gains taxes, estate agent costs, valuation fees, legal costs, etc.

The only way BTL is going to make anyone a profit is by HPI, but isn't it reasonable to assume over time due to wage increases and inflation house prices will also increase and along with it rental yields. Dont get me wrong, BTL wont make anyone any profits for a good few years now, but there will be a time when it becomes imo a reasonable investment vehicle.

IveSeenTheLight

smartn wrote: »

The only way BTL is going to make anyone a profit is by HPI..........

Dont get me wrong, BTL wont make anyone any profits for a good few years now, but there will be a time when it becomes imo a reasonable investment vehicle.

I bought one of my BTL in Jan 2007 and it is profit making.
There are profit making properties out there. Granted maybe not widely available, but there are if you look for them.

Dithering_Dad

IveSeenTheLight wrote: »

I bought one of my BTL in Jan 2007 and it is profit making.
There are profit making properties out there. Granted maybe not widely available, but there are if you look for them.

I know I pretty much ruled out BTL for me, I'm still interested in the financial side of it, so would you mind answering the following?

How much did you buy it for?
How much deposit did you put down (did you save this deposit or MEW it?) How much do you rent it out for?
How much is the mortgage on the BTL?
How much were your purchase fees (legal, arrangement fees, valuation fees)
How much (if anything) were your decorating/renovation costs?
Have you had any void periods in the past 20 months?
How much have any repairs or maintenance cost?

Quite a lot of financial information, but as we're on an anonymous website...

Sorry to keep banging on about this, but I just don't think people factor in all of the costs when they make investments - property or otherwise. I know that a colleague of mine will buy shares at 400p and when they go up to 401p will say 'Yay! I'm in profit', forgetting that fact that he paid stamp duty and broker costs when he bought the shares, meaning that the share will have to hit 410p before he actually just breaks even.

I'm convinced that this is the same with some BLTers - they have a mortage at £550pm and a rent at £600pm and say 'Yay, I'm in profit', forgetting all the up-front and on-going costs...

hmnn, I have a feeling that I'm not making may friends in the BTL fraternity on this thread, but I do think that it's better to discuss these things so that anyone new to the bsiness knows all the facts. Apologies if I'm stepping on toes

IveSeenTheLight

Dithering Dad:
I could divulge my BTL investment strategy in detail , however I don't think I follow the normal BTL.
E.g, rather than leave the mortgage high to benefit on allowances via tax, I am resolved to reduce that as fast as I can. It's not the most efficient way, but it is the safest risk way.

I've seen from some of your other posts, you query why BTL, when you can stick in a bank.
Just very simply, if you buy a property for 150k with a 30k deposit, then your investment is 30k.
If managed properly and you obtain a rental coverage throught the lifetime of the mortgage including running / maintenance costs, even without any change in the property price over 25 years, that property is now worth as an investment 150k
Puting the same 30k into a bank at 5% only gives you a 4% return after tax. Therefore after 25 years that 30k at 4% return is only 80k, therefore a 70k better return from property in this example than puting into a standard bank account.
In order to get a similar return you need a nett interest rate of approx 6.66% or 8.325% gross

The key is to ensure that enough rent is received to cover costs, which in my case, both my BTL's do and much more.
Possibly in the areas you are looking at this is not achievable and the figures don't add up. Its not the case everywhere though.