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

shellbell63

Never knew I had it in me to spark such a huge debate!:D

Gorgeous_George

Cleaver, with £45K equity, your £67 profit is somewhat less as you haven't factored in loss of capital on the £45K.

Also, the £67 profit is not what should be declared to the taxman. Only mortgage interest can be offset against tax. However, if you bought another house, the first £45K of that mortgage can have its interest offset against income.

GG

Cleaver

Gorgeous_George wrote: »

Cleaver, with £45K equity, your £67 profitis somewhat less as you haven't factored in loss of capital on the £45K.GG

The loss / gain on capital will only be when we sell the home. This is likely to be some time between 2020 and 2030 I imagine. So as I said in an earlier post, the house could be worth 50k or 200k by then.

Gorgeous_George wrote: »

Also, the £67 profit is not what should be declared to the taxman. Only mortgage interest can be offset against tax. However, if you bought another house, the first £45K of that mortgage can have its interest offset against income.GG

I realise this. our declaration to the taxman was a bit more than £67!

napoleon

Chucky = tax dodger.

No wonder this country is up shiite creek

neverdespairgirl

ncooper1974 wrote: »

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....

Why not just leave it in the bank for the better return, though?

ncooper1974

Its a bit like what chucky does. I work thru a ltd company. 2 out of my 3 properties are in the ltd companies.
If i leave 85k in the bank, i'd get about 3.5% interest on it. By investing, I can get about 4.5% return.
Its a gamble in the long run, but one I'm prepared to take. I never buy in an area I'm not familiar with, and I always keep rents below market to minimise voids, and I try to keep a good relationship with my tenants.

I took offence to some posters calling me selfish and greedy. I wonder what the same posters would think about people who have 2 jobs - are they selfish and greedy and contributing it unemployment by taking jobs away from others?!?

Dithering_Dad

Cleaver wrote: »

Just to use us as an example for this.

Our house was worth £130,000 when we started renting it in April 2007. We have £45,000 of equity in this house. For sake of argument, let's say the house is worth £120,000 in the year 2021 when the mortgage will be paid off (it could be worth 50k, it might be worth 200k, who knows?). As my original post pointed out, we will make no money and lose no money between now and 2021 (aside from the mortgage being paid off - although we would have some extra tax to pay, so we might just keep some form of mortgage on the property). So if we sold the house for £120,000 in 2021 we would be sitting on around 75k.

If we had sold our house in April 2007 for £130,000 and invested our £45k equity in a 5% ISA until 2021 it would be worth around 90k. So therefore a 'profit' of 45k. So we'd make 30k extra through the buy to let option.

The above example is very, very simplistic and I'm fully aware it's subject to many, many variables. We've also made the above decision based on a whole load of other factors: family situtaion, other money we have, our job situations, our lifestyle, future life decisions we may make (we may be moving back to where our families at some point so it'll be great to have our old house available) etc. etc.

Or we could both be hit by a bus tomorrow and the whole argument becomes academic.

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.

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.

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?

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.

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.

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 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.

smartn

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 have real concerns for anyone expecting to get 10% annual returns long term from the stock market. It's obviously very difficult to say how things are going to go but if you look at the UK index over the last 10 years even taking into account dividends etc you wont have returned anything like 10% per annum.

Dithering_Dad

Max_Headroom wrote: »

But you miss the point old bean. With an ISA you'd have to keep putting money in (compound interest on a £15K start up isn't going to be massive). The idea of a BTL is someone else paying for you, via rental income, so you end up with an entire house after 20/25 years.

I totally agree that right now the numbers don't add up, but they have done in the past and they may again with a combination of dropping house prices and inflation.

With the 'real-world' example, the deposit was 80k, which would be a substantial amount to invest. I can't imagine being able to get much of a house with a £15k deposit, especially given that BTL lenders typically want 20/25% deposits. £15k would allow me to buy a £60k house, which wouldn't give a particularly good rent (if I could even find a house at that price in my area).

The majority of the rental income goes to the bank to service the interest only part of the mortgage and the rest is soaked up with the running costs (mortgage arrangement fees, redecorating and property maintenance, electrical and gas checks, agency fees, insurance, etc.). Anything remaining is obviously the profit and is either put back into the house in a repayment mortgage or is taken to be used elsewhere.

The rental profit equates to the interest on an ISA or other investment and as far as the examples we've seen so far, it amounts to less than you'd receive by placing it into a bank. While you could argue that the Tenant is paying for your investment in a BTL, I could say that the Bank is paying for my investment in an ISA.

Yes, with BTL after 25 years (or whatever) you'd be left with a house fully paid off, alternatively you could have the equivalent saved up in a tax-free investment vehicle. When you sell the house you have to pay 18% capital gains, with an ISA there are no capital gains.

With an ISA there are no costs; no boiler replacements, no white goods replacement, no insurance, no dead rental periods, no redecorating, no agency fees, no legal costs to remove bad tenants, no late rental payments, etc. etc.

JonnyBravo

mewbie wrote: »

Incorrect. The point is that BTLers pumped up the price of housing that other people might have liked the chance to own and live in. If some share investor prices shares out of my reach it doesn't really affect me. If someone prices property out of my reach it does.

Yep it's all about perspective isn't it?

I suspect you are feeling guilty about the fact that the short supply of wheat for the world has meant that many people in the world have seen it disappear from their diet.... or perhaps you've stopped buying anything with wheat in it?

I'm not trying to be antagonistic.... I can understand why those priced out of the market are resentful towards some BTLers but there are many examples of people being disadvantaged by others buying a commodity.