BTL dreams go up in smoke

macaque_2

For several years, BTLs turned into a swarm locusts and bought everything they could find. When people warned them about the dangers, BTLs responded with: 'I'm in it for the long term'. As business plans go, this makes about as much sense as investing in a three legged horse in the hope that a fourth leg will appear in time.

The more first time buyers complained that they could not afford a home, the more BTLs gloated about their 'portfolios'. The only problem was that the 'portfolios' actually belonged to the banks.

For a few years the country went stark mad with greed and stupidity. At one point Foxtons trumpeted that they had 80 buyers for every house on offer. Today Foxtons are in diffculties and house prices are falling like a stone. Today we learn that rents are also in free fall.

To all those idiots who thought they could have a free lunch by borrowing upto the eyeballs; my advice is to now go and get a proper job.

A glut of unsold properties hitting lettings market since the beginning of the year has pushed rents down by as much as 25% across Britain.

http://www.guardian.co.uk/business/2009/feb/25/rents-fall-amid-glut-in-lettings-market

SamIAm_3-2

macaque wrote: »

As business plans go, this makes about as much sense as investing in a three legged horse in the hope that a fourth leg will appear in time.

Nice analogy. I must remember that one!

epz_2

in fairness their costs have likely dropped more than that in the short term, longer term i know i know i wouldnt like to be holding a declining asset with reduced yields and the potential for mortgage costs to jump massively.

IveSeenTheLight

epz wrote: »

in fairness their costs have likely dropped more than that in the short term, longer term i know i know i wouldnt like to be holding a declining asset with reduced yields and the potential for mortgage costs to jump massively.

If its a declining asset they yield is increasing
Anywho, I believe the majority of BTL's are doing fine.
The CML's figures reported that 0.11% BTL properties were repossessed in Q4 08

Pssst

Point taken but then again,if youve never tried,youve never failed. I'm not a BTL'er by the way.

novazombie

I like this bit-

and that landlords are offering lures such as free satellite TV and free weekly cleaner in a desperate attempt to secure new tenants.

ha ha

It reminds me of all the house sellers trying things to shift their over priced houses.

The Fact is everything is coming down like a stone, rents houseprices profits everything.

the_ash_and_the_oak

IveSeenTheLight wrote: »

If its a declining asset they yield is increasing /quote]

Surely only the asset declines, not the amount owed on it? if something drops from 200k to 150k but you still owe the 200, how has the yield increased?

RomansProperties

All my buytolets are doing fine.
In fact the rate cuts are helping very nicely.
I have only reduce a coupe of rents which as a percentage works out about 3% of all property.
I also only buy high yielding properties as there was never any point buying an investment which only just covered the mortgage.
Cash flow in the main objective and thats where certain landlords with get through this no problems at all
Looking at repos if you look on rightmove and our local auction sites it seems to be either city centre flats or people who have been taken by investment clubs who are getting repo'd.

ad9898_3

RomansProperties wrote: »

All my buytolets are doing fine.
In fact the rate cuts are helping very nicely.
I have only reduce a coupe of rents which as a percentage works out about 3% of all property.
I also only buy high yielding properties as there was never any point buying an investment which only just covered the mortgage.
Cash flow in the main objective and thats where certain landlords with get through this no problems at all
Looking at repos if you look on rightmove and our local auction sites it seems to be either city centre flats or people who have been taken by investment clubs who are getting repo'd.

To be fair, of course some LL's are doing ok, however I would suggest that anyone who amassed their portfolios after 2004 with high LTV's are staring into the abyss, the LL's in this particular boat won't be posting on this board

RomansProperties

ad9898 wrote: »

To be fair, of course some LL's are doing ok, however I would suggest that anyone who amassed their portfolios after 2004 with high LTV's are staring into the abyss, the LL's in this particular boat won't be posting on this board

I had about 5 properies prior to 2004 and then after giving up my other business started buying high yielding properties in 2005/6.
I agree the values of these will have took a dip but Investment properties are usually valued on their returns.

For example a house which is converted into flat brings in £15k would previously be valued at about 10%. As valuers are mortgage companies are getting a bit more nervous they are now looking for about 11%-12% so the properties have lost a bit of money but are still good investments.

Recently with the price drops there has been a few terrace houses (2Beds) in auctions and agents as repos which represent good value for money even if prices do go lower.
For example a 2 bed house in Armley just sold for £52k at the auction
Private rent on this would be £450PCM a 10.38% return
or DHSS rent on this would be £122PW a 12.2% return
I also cant see this type of house going much lower in value.
If you take the second option DHSS you would never be short of a tenent and in some circumstances the council can pay you direct.

IveSeenTheLight

the_ash_and_the_oak wrote: »

IveSeenTheLight wrote: »

If its a declining asset they yield is increasing /quote]

Surely only the asset declines, not the amount owed on it? if something drops from 200k to 150k but you still owe the 200, how has the yield increased?

Rental Yield is the percentage returned on any investment.

Rental Yield = Monthly rent x 12 / Property Value x 100%
i.e 4.8% = £800 x 12 / £200,000 x 100%

In your scenario, if the value drops to £150k, it is irrelevant that the person owes £200k. If they were to sell the investment is only worth £150k for them to invest elsewhere / pay off the loan

Therefore the rental yield becomes

6.4% = £800 x 12 / £150,000 x 100%

As the assett value decreases from £200k to £150k, the rental yield in this scenario increases from 4.8% to 6.4%

In this scenario, it would be better to hold on to the property rather than sell and have to make up the loss of £50k

Normally though, you will find that there are bigger deposits on BTL and the negative equity you are relating too will be the exception, not the norm