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

JonnyBravo

HammersFan wrote: »

I thought house prices woudl rise from Dec 2008 to Dec 2009, by about 2-3% (Land Registry Figures).

So far they are only very slightly down on the year, and that based on really small volumes. So although i was worng, it wasnt by a huge amount.

Well we're a way off getting LR figures for Dec09 yet and I reckon even those figures are going to see you out by a fair bit actually. 10% loss?

neverdespairgirl

IveSeenTheLight wrote: »

Well if it falls, then it would be worth less, but then again, nowhere in history (even in Japan) has house prices been lower than they were 25 years previously

Deja vu - you've said this before:

Quote:
Originally Posted by IveSeenTheLight
I've not seen one point in history where the prices were less than they were 25 previously.

I think you'd find lots of 25 year periods thus in the 14th century.

At the start of the 1300s, the Little Optimum was in full swing. Balmy temperatures, vineyards all over England (incl, for example, Ely and Lincoln) and an expanding economy. It lasted from about 800 to 1300 AD.

Then a series of disasters struck. THe Little Optimum came to a crashing end.The reliably good summers in Europe stopped about 1300 AD, affecting the previously all-but-certain good harvests. In England, harvests worsened, and then after terrible weather early in 1315, failed altogher, leading to a famine for at least 3 years. From 1315 to 1317, winters were very cold, and summers cool and very wet. In England, and estimated 20% of the population died of famine between 1315 and 1322.

Then the Great Mortality (AKA Black Death) hit in the late 1340s to early 1350s, and perhaps 33% - 50% of England's population died.

Therefore it is extremely likely that land prices were significantly lower over many different 25 year periods in the 14th century.

England's population in 1300AD has been estimated to be about 6 million, + / - 500,000. By 1355, the population was an estimated 2.5 million. It didn't reach 1300 AD levels again until about 1660. Even in 1801, at the time of the first census, there was a population of about 8.5 million.

JonnyBravo

neverdespairgirl wrote: »

Therefore it is extremely likely that land prices were significantly lower over many different 25 year periods in the 14th century.

:rotfl:

Great stats NDG.

Big market of land sales in c14 was there? Lots of buyers?
A well kept record of the prices?

For what it's worth I agree your reasoning is sound but it's "largely finger in the air" type stuff, hardly a definitive rebuff.

mewbie_2

I have changed my mind since reading this thread and am now ready to become a fully fledged BTl, there's obviously money to made without too much hassle. So. I would be very grateful if anyone could show me a current property for sale (Rightmove link please), where I can put down a deposit of say 20k, and start to make money in the way you describe.

I want rent to cover mortgage, plus loss of interest on my deposit money, to allow for 2 months voids per year and agents fees (I don't want to faff around with tenants myself). I think a decorating budget of at least a thousand per year would be required, so please can you factor that in for me. I expect to be paying off the property over a 25 year period, so need to have a repayment mortgage factored in. No silly interest only for me thankyou!

If this works out then I will guarantee you a share in profits of say 5-10% from the first year for my gratitude.

Thanks.

Cleaver

Dithering_Dad wrote: »

Thanks for the example Cleaver, this is exactly what I was hoping for when I made my post. I see BTL as a legitimate investment like any other, but just didn't see how the figures totted up.

Sometimes they don't I guess. But for some people, such as me and the missus, other considerations have been made when deciding what to do in our situation. I wouldn't personally go out and get a BTL house specifically. But then again, I wouldn't invest my money in a whole host of things: shares, gold etc. but I'm sure a lot of people do, and good luck to them.

Dithering_Dad wrote: »

In your example, I'm assuming that when you moved to the new area you bought a new house? If you did then what did you use as a deposit on your new home? Traditionally, you would have used the £45k equity and so would have had a much lower mortgage, and perhaps a better mortgage rate depending on your LTV. Basically, your sums don't seem to factor in the higher mortgage you must be paying in your new home.

We live in a property here that we bought outright with cash, so no mortgage on our current abode.

Dithering_Dad wrote: »

As you admit, the sums above are very simplistic and are very baised (in my opinion) towards justifying the BTL scenario. There is no mention of the cost of running the BTL - just a nod towards the fact that it must be run well because the mortgage was paid off. Also, while you can calculate how much the ISA would be worth with a high degree of accuracy (though your 5% rate is low, you can get 10% in an ordinary Halifax account at the mo), you just plucked the BTL value fuigure out of thin air - it could be higher or it could be lower, who knows?

You're correct, my scenario was simplistic, but we're speculating on a market that we have no idea of the situation of in 20 years. ISAs may not even exist then. Our running costs were factored in to the figures I gave you originally.

Dithering_Dad wrote: »

There is also the risk factor that no one has mentioned before. What happens if inflation gets out of control and interest rates go up to say 8%. With the ISA, you'd be quids in because you'd get a much better rate - this would go some way to offset the higher rates you'd be paying on your home mortgage. With two mortgages, you'd have a double whammy.

You sound a very rational fella, and I'm enjoying discussing this with you so this comment isn't directed at you. But the above scenario is used as an example of why BTLers are all 'idiots' and 'deserve what they get' on this forum for making stupid decisions. We looked at how much cash we had in the bank and worked out that even if the house lost 50% of it's value and we had to sell, we wouldn't be in negative equity. If rates rose to 8% we'd have less money to spend each month. We took the choice to rent the house, we stand by the consequences. But we have enough spare cash around to throw a bit at the mortgage if we needed to.

There's a general assumption that 80% of BTLers are idiots, who have jumped on a bandwagon and will pay the cost. Sure, maybe 20% of them are, but it's not the majority. And it's probably the same percentage of people who invest cluelessly in other areas: "I bought some gold as I read it was going up in the paper". "I bought shares in company x as the bloke down the pub said they were going up". For every one of these people there are ten who know what they are doing, or are at least willing to stand by their decisions if things go wrong knowing they made an informed decision based on their research.

Dithering_Dad wrote: »

If you lost your job in the recession and things were getting desperate, you'd have to sell the BTL or your home (or both) at a huge discount, especially in the current climate. With the ISA/Savings option you could simply use this money to keep your head above water until you rode out the recession.

Yup, all very true. But we do still have savings, and own another property outright. So we're cool, even with a job loss. We don't live a very flashy life, so we save about 50% of our income each month. We would fall back on this. You're maybe assuming that as we have a BTL we have somehow stretched ourselves, which isn't the case!

Dithering_Dad wrote: »

If all BTL is about is praying for HPI in order to cash in then you may as well invest in the stock market and at least spread the risk across market and geographical sectors, typically returning 10% long-term which really does blow your comparisons out of the water. To me, it's a much lower risk, because just as the ISA savings rate offset the home mortgage rate, you can buy government stocks to offset equities (i.e. when equities fall, fixed and index linked bonds rise).

I agree with all that too. But I guess we're coming at this from a different place: there are many other factors about our rental house (it isn't a BTL...) that suits us, I just hope it makes us some money too in the (very) long term.

Dithering_Dad wrote: »

I had a PM from someone offering to supply me with full details of his BTL, so hopefully I'll finally see some real-life figures. I'm just hoping all of the purchase costs (including decorating costs prior to letting) and all of the maintenance costs are included so I really can see a like-for-like comparison.

As I've said, I wouldn't go out and specifically get a BTL. No venom or hatred towards those that do: it's a business decision and I hope they make some money. Having said this, we have a house we have ended up renting out and, my personal opinion, is that in 2020 or 2030 when we get round to selling it we'll make some cash. If we don't... let's hope we have our health and are happy!

shellbell63

Just another thought re the ISA v BTL comparison.

10 years after retirement, rental will in all probability have increased at least keeping up with inflation. So our income isn't effectively reducing with every passing year

10 years after retirement, capital in ISA will be same - assuming interest rates haven't dropped at any time, making you dip into capital of course. If capital same & int rates same, your income has remained static - meaning in real terms its reducing with each passing year.

As I say - we're doing ISA also, so it isn't an either or situation. But as theres been a fair bit of debate based on this scenario, thought I'd throw this one in......?

dopester

shellbell63 wrote: »

Just another thought re the ISA v BTL comparison.

10 years after retirement, rental will in all probability have increased at least keeping up with inflation. So our income isn't effectively reducing with every passing year

You ought to try some mass-unemployment and wage deflation on for size. Coming soon all over the UK, and lasting a very long time.

http://news.bbc.co.uk/1/hi/england/7548284.stm

Jonbvn

neverdespairgirl wrote: »

I think you'd find lots of 25 year periods thus in the 14th century.

At the start of the 1300s, the Little Optimum was in full swing. Balmy temperatures, vineyards all over England (incl, for example, Ely and Lincoln) and an expanding economy. It lasted from about 800 to 1300 AD.

Then a series of disasters struck. THe Little Optimum came to a crashing end.The reliably good summers in Europe stopped about 1300 AD, affecting the previously all-but-certain good harvests. In England, harvests worsened, and then after terrible weather early in 1315, failed altogher, leading to a famine for at least 3 years. From 1315 to 1317, winters were very cold, and summers cool and very wet. In England, and estimated 20% of the population died of famine between 1315 and 1322.

Then the Great Mortality (AKA Black Death) hit in the late 1340s to early 1350s, and perhaps 33% - 50% of England's population died.

Therefore it is extremely likely that land prices were significantly lower over many different 25 year periods in the 14th century.

England's population in 1300AD has been estimated to be about 6 million, + / - 500,000. By 1355, the population was an estimated 2.5 million. It didn't reach 1300 AD levels again until about 1660. Even in 1801, at the time of the first census, there was a population of about 8.5 million.

Can you imagine tenants rights in c14 England?

No rent money?
"Crucifixion? 1st cross on the right!"

Jonbvn

TBH, I think the big problem I have with BTL is that I would have to spend time engaged in it. I don't have lots of that, and even when I do, if I considered the time I spend on such an investment at my present contract rate, then BTL would be non-starter.

Perhaps if circumstances changed, I might revisit the idea?

mewbie_2

Cleaver wrote: »

...80% of BTLers are idiots, who have jumped on a bandwagon and will pay the cost.

For every [STRIKE]one[/STRIKE] ten of these people there [STRIKE]are[/STRIKE] is [STRIKE]ten[/STRIKE] one who knows what they are doing...

I have misquoted you for my amusement. I don't have any particular point to make about your situation, it may be OK, wish you well with it. My version of your 'quote' is my opinion on most BTL newcomers since maybe 2001. The people who signed up to an InsideTrack course for example, who did indeed listen to the bloke down the pub. I believe they far outweigh any sensible investors.

Let's drop the BTL expression altogether, it sounds too new and exciting even now. Let's call it what is really is, being a landlord. Never a glamorous occupation at the best of times - hard work for a fairly average reward - it was shunned by most people up until the madness took hold. Then all of a sudden everyone wanted to be one. Er, excuse me, why do you think that was? Had they all discovered a secret way to make money, had everyone always yearned to become landlords? I don't think so. Collective madness, greed, easy credit pumped up a bubble for a few years.

Now it is over. As dead as ostrich farming, classic cars, dot com shares, etc.

However. Find me a property for sale now that can make me money, do the sums and prove it, and I stand to be corrected, even humbled. You see I also loved the idea, the dream, but having done some simple calculations I could see it was no more than a geared gamble.