Bears, Buy to Lets landlords and House Prices.

JonnyBravo

Wookster wrote: »

Where would we be without these wonderful, life changing pearls of wisdom?

Good question. Let's consider yours.

Wookster wrote: »

Really? Wouldn't a FTSE 100 tracker have got you a 20+% return in the last 9 months.

No.

The FTSE 100 in Oct 08 was between 4000 and 4500 predominantly.
Friday it was 4200.

Wookster wrote: »

Perhaps rented houses aren't "better and safer than any other investment" after all.

Have you heard of portfolio theory & diversification of risks? Or liquidity?

All valid points. Much as most of what julieq wrote was valid. Easy to pick on a few points though isn't it?

:rolleyes:

nearlynew

julieq wrote: »

There has been a lot of sarcasm here, but no-one has told me which is wrong, that house prices will eventually get back to current levels or.................

I think you will find that house prices are always at their current levels.

mbga9pgf

EVEN IF prices return to 2007 values, you haven't bothered to account for inflation.
You cant say "I bought an asset in 2007, its dropped 30% in value, but that doesn't matter, because in 2020 it will be back to what I bought it for...." the REALITY is you have an asset that is worth less today than it was yesterday. You completely are ignoring the effect of inflation. Your property is not the same REAL value and unless your asset is worth more in real terms than it was when you bought it, you have made a LOSS! If you think we will see 2007 prices in the next 6-10 years, you need your head feeling!

You also havent commented on what happens to yields when we face 10%+ unemployment, rising taxes and rising interest rates. Yield rises as prices fall remember, doesn't make you any richer if you are holding the asset as its capital value falls does it?

I will give you another clue, what use is a 7% yield when 20-30% of your tenants are defaulting on their rent and the government doesnt give two hoots about your loss of profit, as evicting said tenant then creates a housing problem for them?

Sounds as if you got brainwashed at an inside track seminar!!!

julieq

So how does a 7% 7 year bond account for inflation then?

I think we should be told.

julieq

Well, since no-one has piped up, the answer is it doesn't. You get the yield and the capital back, which as mbga so patiently explained has dropped in real terms value because of inflation. You calculate whether it's a good or bad investment by reference to the yield against the loss due to inflation.

(One of the nice things about housing though is it will tend to track inflation in terms of capital value, so there's a more or less automatic hedge. A cash bond doesn't have that).

As far as 10% unemployment or mass rental default, we'll see what happens, but in those cases, what alternative investment would do better?

Graham_Devon

julieq wrote: »

Graham, with the greatest of respect, what part of my argument are you discounting as "bull"?

That there is a 7% relatively safe yield pa in the residential rented sector?

Or that houses will return to today's prices over a period of years?

Actually another way of putting this is that holding a BTL is a good decision if the rate of capital depreciation averages less than the yield. That is true whenever the initial investment was made, even if it was at the peak, because you are investing the money you have, not the money you had. The ONLY reason to bail out of BTL now would be cashflow.

To repeat, it doesn't matter whether the market is at the bottom, this is still a good investment opportunity. You may not like that because it piques your sense of what is right in terms of affordability, it may be counter intuitive to many, but that is why most people fail to see investment opportunities until the boat has sailed.

It's bull because it's a very simplistic view, not taking into consideration so many variations.

It's also bull because you cannot have every which way as "the best time". No matter what happens in the economy, BTL's come out and say "yes, this is good for me".

If the market is not at the bottom (which it isnt) how on earth can it be a good investment opportunity? Can you explain please how a good investment comes from a product in which you put in say 100k, you lose 20% straight away, the account costs a lot to service, and you don't know how long it may be until that investment reaches 100k again?

Sure, you say about 7% yields. Another completely variable measurement depending on A) a tennant for a full 12 months a year who pays up and you never reduce your prices....and based on the current situation, thats pretty unlikely.

You don't even take into consideration the fact that mortgage rates are only on the way up, and interest rates only have one way to go, up. Even if you get a fix, it's unlikely it will be for long enough to be confident in your investment profits for anything over 5 years.

Surely you cannot ignore the value of the asset, and only concentrate on the yield? We all know BTL investments were pensions and a quick route to making lots of money on the asset. Pointless pretending otherwise.

Plus the inflation point bought up earlier. So, yes, bull

julieq

I am getting a little tired of trying to argue politely with people who are just rude back and don't actually do me the courtesy of following the argument.

I'm not ignoring the value of the asset, I've said what I think will happen to that. It can go down provided eventually it gets back to the value it is at today. I've said back to current values in 7 years which I think is hugely conservative. If you time the bottom (like whoever it was who has a crystal ball and got the 20% ftse return) then well done, but you don't need to time the market to make money from it.

Inflation isn't an issue, I've explained why. A 7% 7 year bond which I'm using as a point of comparison does NOT have inflation proofing on the capital.

And I said that the only reason to dump a BTL now would be cashflow, i.e. cost of servicing debt greater than income. So there's the answer to your mortgage rates issue, however note that most if not all BTL investors will have reduced gearing due to the increased yields - if not they'll fail, but so will any badly run business.

By the way, a view that looks just at capital values and is based pretty much entirely on extrapolating worst cases seems a little more simplistic than mine, but then again mine does have the benefit of simplicity.

mbga9pgf

julieq wrote: »

Well, since no-one has piped up, the answer is it doesn't. You get the yield and the capital back, which as mbga so patiently explained has dropped in real terms value because of inflation. You calculate whether it's a good or bad investment by reference to the yield against the loss due to inflation.

(One of the nice things about housing though is it will tend to track inflation in terms of capital value, so there's a more or less automatic hedge. A cash bond doesn't have that).

As far as 10% unemployment or mass rental default, we'll see what happens, but in those cases, what alternative investment would do better?

Cash in a bank account. You are also ignoring compounding of interest, which you havent bothered to account for. My 3.5% gain is rolled over, and compounded into next year.

And your bonds capital value wont have dropped 30% in the same period, a la property.

So, have you an answer for:

Defaulting renters (rising rapidly)
Rising interest rates increasing payments
Falling rentals (you cant say you are better off with lower prices whilst not admitting rental prices are falling like a stone)
Massive oversupply of rental due to the resi sales market freezing and people renting rather than selling

Look:

Buy house in 2007, worth post crash 30% lower, IMO, no recovery to 2007 prices till the latter part of this decade.

Costs:
Mortgage arrangement fees
Increased IRs due to BTL mortgage costs
Interest payments on a devaluing asset
losses due to falls in capital value
Falling rental
Costs of advertising or agency fees.

Many BTLs seem to forget all of the above when spouting crap like "I am on a 7% yield". Rubbish.

Now, I save my cash, rent for 300 a month and will have 100K banked by next February, earning 3.5% completely guaranteed by the government. Prices to bottom by 2011/2012, why the hell would I go and BTL right now with further market falls, uncertainty in the jobs market etc?

You Sound like all the rest. Someone conned at an inside track seminar, now in above your eyeballs in negative equity, probably financing a fair few of your BTL properties illegally using residential mortgages, deposits paid for by Equity withdrawing on the previous gains made in the boom years, heavily geared and wanting to justify your bad decisions by having a go at us on here.

If you think REAL prices will bounce back to 2007 prices in the next 7 years, without liar loans, the retail mortgage backed securities market, debt insurance market, ridiculous multiples and no minimum deposit requirements, then please enlighten us all. Without the cash, real prices will NEVER return to their real 2007 highs in my lifetime.

julieq

If you can get 7% in a bank account, show me where.

If you think house prices will be 30% down on today in 7 years, then I'm afraid I don't agree with you. Just on the basis of normal levels of historic inflation there's a 30% riser over that period.

furndire

I think a lot of people get muddled up with Buy to Let, and Buy to Do Up/sell & make a profit. People always need somewhere to live, and now that local councils have sold their housing stocks they can't drop back on that source. If buy to let has been bought at the right price and with enough of a deposit, & letting out at a reasonable rent (so as tenants can afford them), they have to drop a hell of a lot further not to be profitable.