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

mrstinchcombe

ncooper1974 wrote: »

I actually was going to justify myself to you, but thought better of it.
I just hope that when you buy your home you manage to walk thru the front door with that big chip on your shoulder

No need to justify yourself to me, you can't anyway.

The problem is I can't afford a house, I wonder why that is!

Dithering_Dad

chucky wrote: »

the bank account option is a better option as the BTL side has many more down sides than having the cash in a bank account.

in saying that it would be a suggestion to put about 10 or 20% into equities for example so as to get a better retuirn than a bank account. there is obviously a risk and would only be a good suggestion if you could afford to lose on that 10 or 20%.

That's what I thought, but surely this is rudimentary mathematics and common sense, so why do people invest in BTL if the returns are less than or equivalent to a bank account and the hassles are so much more?

OP, you must have done the calcs as you're thinking of investing again and you have BTL's already. What price were you looking to buy at, what size deposit would you put down and what would be your rental? Sorry if this is a bit nosy, but I'd really like to see some 'real world' examples!

p.s. I have no animosity whatsoever to BTL people or any other investors, so I'm not having a dig - I actually want an informative debate! (wow, now there's a novelty on here )

ncooper1974

mrstinchcombe wrote: »

No need to justify yourself to me, you can't anyway.

The problem is I can't afford a house, I wonder why that is!

Oh, thats probably my fault!
And in your instance, I'm probably glad

ncooper1974

Dithering_Dad wrote: »

What price were you looking to buy at, what size deposit would you put down and what would be your rental? Sorry if this is a bit nosy, but I'd really like to see some 'real world' examples!

I'm currently looking at a 1 bed flat valued at £175k
It would expect to achieve 900pcm, with approx £1100 pa in service charges, ground rent, etc.
I can get a BTL mortgage with an interest rate of 6.29% without any fees.
With a deposit of £85k, if i can get the property for £160k then I'm happy with the returns, even though I know I can get a lot more for my money by just leaving it in the bank....

Dithering_Dad

chucky wrote: »

the obvious upside on BTL is the capital appreciationbut short to medium term this is unrealistic - rental yields will very rarely make you money. the objective is not to make a profit anyway so you pay no tax on the rental income...

But if you sell, you get hit with estate agent costs, legal fees and a huge capital gains tax bill. Whereas if you put that BTL deposit into an ISA (with the compound interest also re-invested into the ISA), your entire investment is free from income tax and capital gains.

Besides the OP said that they won't be selling because the rental will be the pension. If this is the case, for the OP at least the investment return does not make sense.

I also see other BTLers on here who say that it's immaterial whether their property prices fall, because the rental yield is important - but if the rental yield is so crap then what's the point of all the hassle?

Is it just me not getting it, or is BTL a mugs game?

shellbell63

chucky wrote: »

don't worry you'll get used to this on this forum.

the BTL's are hated by the HousePriceCrash Ghetto Members on here.
just take what you can from the more helpful people on here.

Thanks Chucky - I thought I'd opened a HUGE can of worms with my 'innocent' (well I thought so), question.

Dithering_Dad

ncooper1974 wrote: »

I'm currently looking at a 1 bed flat valued at £175k
It would expect to achieve 900pcm, with approx £1100 pa in service charges, ground rent, etc.
I can get a BTL mortgage with an interest rate of 6.29% without any fees.
With a deposit of £85k, if i can get the property for £160k then I'm happy with the returns, even though I know I can get a lot more for my money by just leaving it in the bank....

Thanks for the details. Which area is this for, it seems to be a high rental yield, cetainly much better than my area (Manchester).

Why are you happy with the returns even though they're less than you could get in a bank? Surely the MSE prime directive is to make your money work the best for you?

Max_Headroom_3

Dithering_Dad wrote: »

Just to pause the BTL barnie for a second, but can one of the BTL people have a look at my post about the investment merits of BTL vs bank account and tell me where I went wrong. For the life of me I cannot and have never been able to see the financial advantage of being a BTL landlord.

Where am I going wrong with my calcs?

Easy.

I'm assuming you put down a deposit. In my area, houses that are for sale at £140k are being rented out at £550pm.

If you put down 25% deposit, you'd have to pay £35,000. Your mortgage would be £105k. At 6% interest only, your mortgage would be £6300 per year or £525pm. This leaves a profit of £25pm or £300 per year. Though you'd have to pay for insurance, agency fees, etc. etc. so there wouldn't really be a profit.

If you took that same £35000 and put it into a bank account paying 6% interest, you'd get an investment return of £2100 per year.

So with very little risk and absolutely no hassle, you're better off putting your money in a bank account rather than a BTL.

p.s. I forgot to add that each time you get a new mortgage product you have to pay an arrangement fee and these are getting more expensive all the time.

In your example you paid too much for the house.

You'd need to buy at a figure whereby the rental income covers a repayment mortgage. That way the house value becomes basically irrelevent in that once it is paid for, you get rental income regardless of value (although I suppose value could affect rental income, in that if prices dropped to £20,000 say, just to make the point, you're not going to get much rent as people would buy instead unless very cheap rent. Not very likely though!)

In addition, there will be (eventually) capital appreciation which, if nothing else, will erode your mortgage value, and of course rental increases in time.

It is a viable business, but like any business the numbers need to add up. They stopped adding up a few years ago but people kept piling in (foolishly) looking at historical capital appreciation for future profits.

Or to put it another way, you could buy a sandwich shop, look at costs and income and decide whether it's a viable business, but if the shop is £10 million pounds it won't be.

It's all about the numbers.

ncooper1974

Dithering_Dad wrote: »

Thanks for the details. Which area is this for, it seems to be a high rental yield, cetainly much better than my area (Manchester).

Why are you happy with the returns even though they're less than you could get in a bank? Surely the MSE prime directive is to make your money work the best for you?

This is in Wanstead, East London.

Part of the reason is that if I leave the money sitting in the bank gaining interest, then I dont feel like I've worked for the money.
I guess each landlord is different. I read on here how some landlords want at least 7-9% yeilds - I dont think I've ever get those. My long term aim is to let my parents live rent free in one of the properties (they were never able to afford to buy) and then possible sell the others off when I decide I've either had enough, or want a change of direction.

shellbell63

Dithering Dad,
I'm no expert but our take on it is - get mortgage paid off by retirement & then rental income together with interest on other investments provide an amount to live on.
I know people who've used pensions & when they've come to draw it - it hasn't been that great, due to market falls etc. My inlaws initially lived on the interest on savings. But when savings int rates fell, they found themselves dipping into capital & then got even less interest & so it went on.
With property you are pretty safe in the knowledge that, as long as you own it, it will produce an income that will rarely go down.
You could say, well why not save/invest & then when you retire just buy outright.... but again there that crystal ball - what will prices be like then & will our savings be able to achieve our goals.
Do we have savings - yes; pensions - yes, some, though I'd like to increase these; BTL - yes 3 so far.
We see BTL as the backbone - the one we can rely on to deliver a regular income.

I'm quite happy to discuss/disagree. I do find a slanging match distasteful though - as most of you do. So can't we all be nice - pretty please?:beer: