The Four Horseman of the BTL Apocalypse.

julieq

I'm saying that capital appreciation should be a secondary consideration. Actually just about everyone commentating on the rental market at the moment is saying that too.

If you have 100K in a bank account and have 3% interest over the period you have it there you end up with £100K plus 3% of 100K compounded over the numbers of years you hold it there. So your profit comes from the 3% and the compounding effect annually of that 3%. At the end of the period you take back your £100K (not in real terms, you get the £100K), and whatever you've earned from it (3% compounded).

If you spend £100K on a house and rent it out, you get maybe 5% of that amount back annually which you can put in the bank where it can compound just like the interest on the bank account would.

So then you consider capital values and take a view. On a conservative view where prices come back to current levels (not real terms, I mean the same number £100K in this example), in 7 years, you will have £5000 a year over 7 years, you can reinvest that in other ways including just by putting it in a bank to get compounding. If you get capital growth it's a bonus but it doesn't drive the investment decision.

The only question then is whether it's worth borrowing that £100K in the first place which is about what you believe will happen to interest rates - personally I wouldn't because it nets to a small percentage and I'd never personally borrow to invest unless the risk/return ratio was highly favourable.

But there are other views, principally based on a long term view of capital growth. Anyway, to an extent you can say that an increase in interest rates would most likely be associated with a general recovery and an increase in capital value, so you're then into a cashflow argument about rental value v. servicing costs v. capital increase.

What I find incomprehensible is the idea it's better to pay rent at comparable rates to mortgage repayments over a period of years to wait for the bottom of the market (or worse still to generate a bigger deposit for unexplained reasons). Those just timeshift the point at which you start paying the mortgage and it's quite a cost to bear while you're doing it.

Thrugelmir

julieq wrote: »

I'm saying that capital appreciation should be a secondary consideration. Actually just about everyone commentating on the rental market at the moment is saying that too.

If you have 100K in a bank account and have 3% interest over the period you have it there you end up with £100K plus 3% of 100K compounded over the numbers of years you hold it there. So your profit comes from the 3% and the compounding effect annually of that 3%. At the end of the period you take back your £100K (not in real terms, you get the £100K), and whatever you've earned from it (3% compounded).

If you spend £100K on a house and rent it out, you get maybe 5% of that amount back annually which you can put in the bank where it can compound just like the interest on the bank account would.

So then you consider capital values and take a view. On a conservative view where prices come back to current levels (not real terms, I mean the same number £100K in this example), in 7 years, you will have £5000 a year over 7 years, you can reinvest that in other ways including just by putting it in a bank to get compounding. If you get capital growth it's a bonus but it doesn't drive the investment decision.

The only question then is whether it's worth borrowing that £100K in the first place which is about what you believe will happen to interest rates - personally I wouldn't because it nets to a small percentage and I'd never personally borrow to invest unless the risk/return ratio was highly favourable.

But there are other views, principally based on a long term view of capital growth. Anyway, to an extent you can say that an increase in interest rates would most likely be associated with a general recovery and an increase in capital value, so you're then into a cashflow argument about rental value v. servicing costs v. capital increase.

What I find incomprehensible is the idea it's better to pay rent at comparable rates to mortgage repayments over a period of years to wait for the bottom of the market (or worse still to generate a bigger deposit for unexplained reasons). Those just timeshift the point at which you start paying the mortgage and it's quite a cost to bear while you're doing it.

You've changed tack. The recent property boom was built on investors leveraging up. Few people have the capital base to buy property outright as an investment. If they did it would more likely be a holiday home or weekend retreat as opposed to a rental let.

Comparisons of property yields to bank deposit accounts is meaningless. There are far more tax efficent ways of investing money. ISA, VCT, EIS or pension scheme to name a few. Within that a vast array of different opportunities depending on your risk profile.

Why would a high rate taxpayer expose his income to 40% or 50% tax?

You sound very much like the unsophisticated BTL investor who has blinkered vision.

There's a new game started somewhere else already but the masses have yet to latch on.

chucknorris

Thrugelmir wrote: »

Julieq's point is to ignore capital appreciation ( why I have no idea), and take no account that the investor is also very highly leveraged.

I am not directing my point at those that buy property outright.

As she says above it is not being ignored merely treated as secondary, which I totally agree with. The investment should stack up as an ongoing concern, and any capital growth viewed as a good later bonus. It's the idiots that bought purely motivated by prospects of capital growth, rather than having a sound business plan that got themselves in a whole lot of trouble ie negative equity, and no tenants.

The worst example I saw was a couple who followed up an advert from The Mail on Sunday and ended up buying some new build flats in Leeds 100's of miles from where they lived. They believed very hyped capital valuations and rental predictions and didn't even visit the city never mind the site. As far as I know they didn't even do a 'desk top study'. Of course these sort of people would lose money eventually at anything they touched. What's amazing is that some people must have actually got away with this sloppy approach to business during the boom years and they probably think they were shrewd :rotfl:

Thrugelmir

chucknorris wrote: »

As she says above it is not being ignored merely treated as secondary, which I totally agree with. The investment should stack up as an ongoing concern, and any capital growth viewed as a good later bonus. It's the idiots that bought purely motivated by prospects of capital growth, rather than having a sound business plan that got themselves in a whole lot of trouble ie negative equity, and no tenants.

The worst example I saw was a couple who followed up an advert from The Mail on Sunday and ended up buying some new build flats in Leeds 100's of miles from where they lived. They believed very hyped capital valuations and rental predictions and didn't even visit the city never mind the site. As far as I know they didn't even do a 'desk top study'. Of course these sort of people would lose money eventually at anything they touched. What's amazing is that some people must have actually got away with this sloppy approach to business during the boom years and they probably think they were shrewd :rotfl:

Precisely, thats why BTL mortgages rose from 30,000 in 1999 to over a million now.

You've benefited from the rise personally. Professionals I know were reducing property portfolio sizes from 2005. A huge number believed in the unbelievable.

Hardly call them business people more gamblers.

chucknorris

Thrugelmir wrote: »

Precisely, thats why BTL mortgages rose from 30,000 in 1999 to over a million now.

You've benefited from the rise personally. Professionals I know were reducing property portfolio sizes from 2005. A huge number believed in the unbelievable.

Hardly call them business people more gamblers.

Exactly my point but they actually think they are business people.

It's unfortunate for those that reduced their portfolio in 2005 becuase I think they would have actually lost out (especially if they expected to buy back in later) because of:

1. CGT was paid at 40% (now 18% this is the killer!)
2. Estate agents fees at around 1.75%
3. Stamp duty
4. Voids whilst selling
5. Missing out on very profitable rents due to interest rates collapse
6. Missing out on decebt savings rates as interest rates collapse
7. Solicitor's fees buying
8. Solicitor's fees selling
9. Giving up decent mortgage interest product deals
10. Having to accept much poorer mortgage interest product deals
11. Selling off furniture or paying storage until buying back
12. If they didn't sell at exactly the top of the market they do not gain the full difference, exact timing is down to luck.
13. Misc. fees ie valuations, mortgage arrangement etc.

Not to mention the stress and time and effort, but as I said the CGT from 40% to 18% was the killer, that takes a hell of a chunk out of their expected gain

julieq

Thrugelmir wrote: »

You've changed tack. The recent property boom was built on investors leveraging up. Few people have the capital base to buy property outright as an investment. If they did it would more likely be a holiday home or weekend retreat as opposed to a rental let.

Comparisons of property yields to bank deposit accounts is meaningless. There are far more tax efficent ways of investing money. ISA, VCT, EIS or pension scheme to name a few. Within that a vast array of different opportunities depending on your risk profile.

Why would a high rate taxpayer expose his income to 40% or 50% tax?

You sound very much like the unsophisticated BTL investor who has blinkered vision.

There's a new game started somewhere else already but the masses have yet to latch on.

No I haven't, I've been very consistent throughout. Why not go back and find the point at which I said what you're suggesting I said? And I don't have a BTL, I've explained this many times.

I actually do have the cash to buy a house as an investment. I'm not doing it mostly because I need access to the cash for school fees. I'd probably buy into a fund investing in residential property though.

As to what the best vehicle for investments is, it's mostly about risk management and where the profit actually comes from. There is no point in having a tax efficient investment in a loss making direction. I consider stocks and shares far too volatile, but I look at the nice stable income available from rented accomodation and it looks attractive.

Thrugelmir

chucknorris wrote: »

Exactly my point but they actually think they are business people.

It's unfortunate for those that reduced their portfolio in 2005 becuase I think they would not have actually lost out because of:

1. CGT was paid at 40% (now 18% this is the killer!)
2. Estate agents fees at around 1.75%
3. Stamp duty
4. Voids whilst selling
5. Missing out on very profitable rents due to interest rates collapse
6. Missing out on decebt savings rates as interest rates collapse
7. Solicitor's fees buying
8. Solicitor's fees selling
9. Giving up decent mortgage interest product deals
10. Having to accept much poorer mortgage interest product deals
11. Selling off furniture or paying storage until buying back
12. If they didn't sell at exactly the top of the market they do not gain the full difference, exact timing is down to luck.
13. Misc. fees ie valuations, mortgage arrangement etc.

Not to mention the stress and time and effort, but as I said the CGT from 40% to 18% was the killer, that takes a hell of a chunk out of their expected gain

The tax change scrapping taper relief on CGT went unnoticed by many.

As property gains realised in Limited Companies now get hit both for CGT and Corporation tax. Ouch!

nearlynew

Oh julie.

So consistent, so articulate, so charming. :kisses3:






















And a frustrated BTLer afraid to put her money where her mouth is.

My dreams are shattered.

RDB

Thrugelmir wrote: »

Why would a high rate taxpayer expose his income to 40% or 50% tax?

You sound very much like the unsophisticated BTL investor who has blinkered vision.

There's a new game started somewhere else already but the masses have yet to latch on.

I agree with this, most forget about the tax man until they get investigated, and he can go back years.

Whats the other game your talking about? Precious metals? Silver in particular is way undervalued if you research it, but not for long.

chucknorris

Thrugelmir wrote: »

The tax change scrapping taper relief on CGT went unnoticed by many.

As property gains realised in Limited Companies now get hit both for CGT and Corporation tax. Ouch!

The old indices were even better which has also been scapped (and was still allowed in addition to the taper relief for assetts held before taper relief introduction). However the new system is better, personally I never liked the taper relief. It was obvious why they changed it from the old indices system. Because with the indice system it was actually possible to pay minimal tax, but the taper relief method merely reduced the actual taxable income by a % so by defination guaranteed the IR a decent wedge of tax.