Buy to let fever?

competitionscafe

meanmachine wrote:

But I'm afraid most punters invest by looking at what has already made money.

Absolutely. And are almost encouraged to do so - as in the current launches of unit trust/oeic funds in Gold, commodities, emerging markets, etc as well as the growth in overpriced btl 'seminars' & 'courses'. Buy low, sell high has always been a good way to make a profit, but the problem is that at the current moment in time almost every asset class has already risen to high levels thereby dramatically increasing the risk. Plenty of specialist stockmarket sectors where you would have doubled your money (or more) in the past 3 years, far exceeding UK house price rises over the same time period: emerging markets, junior oils, mining, resources, Russia, emerging and eastern europe, etc - but as pointed out even the general UK market has beaten house prices over that period. Large property price increases as well as large share price increases have both recently been a pretty much global phenomenon.

poopscoop

I've heard of 'chancers' that invest in property, gold, the stockmarket. Never seen any invest in themselves though.

Tassotti

wisbech_lad wrote:

Did you tack on an extra zero by mistake...? 7.3m quid, 96,000 nett income a year = return of 1.3%.

Even if it is calculated as 96k on 3.2m equity - a yield of 3% is pathetic

You would do better with index linked gilts!!!!

Think you have Net and Gross confused

Gross Annual Income = £438000

8K per month is NET profit after ALL costs (but before tax)

Yield not looking so bad now, eh?

Come on doom mongers tell me, well its only 6%

So, 3.2 Mill in equity, 100K a year profit before tax, and all from an initial investment of 15K.

If I had invested that in the Stock market I would probably have lost the lot.

Tass

BobProperty

Tassotti wrote:

....
If I had invested that in the Stock market I would probably have lost the lot....

Tass

Tass where've you been? Thought you'd done a Bill Hill, sold everything and gone travelling the world (sort of).

Stockmarket has gone up about 60% in last 3 years. Now whether it will continue like that...

Anyway, back to property, it's 6% return the way I calculate it. So (also by the way I have decided to do things) if you have anything in your portfolio that only returns about 5% or less, due to its increase in value, I'd consider selling it. Tax implications though might mean you may as well just keep it. Or consider living abroad for a few years?

Tassotti

Hi Bob

Nice to be missed.

The more you make, the more they take!!!

What I will say to any new BTL investors is be very careful. Don't rely on capital gain increases over the next few years.

In my opinion, market will remain flat for a few years, maybe even drop slightly, but, as ever, if you are in it for the long term, returns should be good.

There is still money to be made in property, but in current conditions, I won't be buying anymore BTLs.

Watch those yields people.

6% is not great and there are probably better investments out there at the moment.

Right, that should see off the competition.

Time to raise the rents!!!:D

Oh yes, about the stock market. I agree, it is outperforming property at present, but I think to make any real money, you have to really know your stuff, which I don't. It would take a great deal of research before I venture into stocks, but never say never.

Don't put all your eggs in one basket.

F_T_Buyer

Tassotti wrote:

Think you have Net and Gross confused

Gross Annual Income = £438000

8K per month is NET profit after ALL costs (but before tax)

Yield not looking so bad now, eh?

Come on doom mongers tell me, well its only 6%

So, 3.2 Mill in equity, 100K a year profit before tax, and all from an initial investment of 15K.

If I had invested that in the Stock market I would probably have lost the lot.

Tass

Ok, i'll review...

Gross Yield:
£438k income from £7600k of housing stock = 6% yield.

Return on initial investment:
£438k income from £4400k debt = 9.95% return on initial investment.

Costs:
+Debt servicing @ 5.25% (0.75bp above base rate) = £231k. Gross income = £207k.
+Maintenace: 0.85% (a guess) of house value per year = £64.6k
+Agent Fees: 10% of rental income = £43.8k
=Net Profit before tax: £98.6k

(ok, I have assumed some costs, but it roughly matches your figures)

So, staying in housing returns £98.6k on £3200k equity.

Whereas if you sold up and banked the money you would return:
£3200k @ 5% (ICICI give you 5.15%) = £160k

Missed oportunities in selling housing stock:
Capital gains on housing.
Potential Pitfalls
Rising debt servicing costs - rising interest rates.
Falling asset prices

Conclusion:
Sell poor performing houses, maybe keep some high yielding easy to maintain properties. Invest equity cash into bank account and maybe come into commodities - but go and see a financial planner.
The risks (rising interest rates) way out weight any potential extra gains (HPI).

All in my opinion of course...

Tassotti

F_T_Buyer wrote:

Ok, i'll review...


Return on initial investment:
£438k income from £4400k debt = 9.95% return on initial investment.

Costs:
+Debt servicing @ 5.25% (0.75bp above base rate) = £231k. Gross income = £207k.
+Maintenace: 0.85% (a guess) of house value per year = £64.6k
+Agent Fees: 10% of rental income = £43.8k
=Net Profit before tax: £98.6k

(ok, I have assumed some costs, but it roughly matches your figures)

So, staying in housing returns £98.6k on £3200k equity.

Whereas if you sold up and banked the money you would return:
£3200k @ 5% (ICICI give you 5.15%) = £160k

Missed oportunities in selling housing stock:
Capital gains on housing.
Potential Pitfalls
Rising debt servicing costs - rising interest rates.
Falling asset prices

Conclusion:
Sell poor performing houses, maybe keep some high yielding easy to maintain properties. Invest equity cash into bank account and maybe come into commodities - but go and see a financial planner.
The risks (rising interest rates) way out weight any potential extra gains (HPI).

All in my opinion of course...

Initila Investment 15K!!!!! Work out the figures on that.

I did say my net profit was minus all costs, but thanks for your figures. A good approximation!

And people seem to forget, equity of 3.2 million. This to me means more than the trivial figures you mention.

Okay, if I sold, I would probably only net ????? you tell me

After 5 years of saving 65, 75, 90K per year over 5 years.

What am I worth.

Can I sell up and retire?

I do, obviously know the figures, but it is a good chance for FTB to put his economics degree into place.

I do respect FTBuyer. He has a brain on his shoulders and should concentrate his efforts on making his own success rather than evaluating/criticising mine

Look forward

rozeepozee

I'm amazed at this. I agree that there is money to be had in investing in property but I stopped buying 5 years ago. I then spent a couple of years in Sydney, Oz where the language of the boom was very much as it has been in the UK and folk were piling into property as investment. This week the Sydney Morning Herald is publishing articles such as this
http://www.smh.com.au/articles/2006/05/06/1146335933244.html?from=top5 Wonder how long before we see something similar in the UK?

meanmachine_2

We won't see these headlines until after 2010. That's when all the baby boomers retire and need people to flog their properties to. The only problem is: there won't be enough mugs of working age to buy them - cue crash.

As I say, 4 more years of seemingly irreversible gains, then population problems will start kicking in.

We won't just need immigrants by then, we'll need rich immigrants!!!

Disaster.

F_T_Buyer

Tassotti wrote:

Initila Investment 15K!!!!! Work out the figures on that.

I did say my net profit was minus all costs, but thanks for your figures. A good approximation!

And people seem to forget, equity of 3.2 million. This to me means more than the trivial figures you mention.

Okay, if I sold, I would probably only net ????? you tell me

After 5 years of saving 65, 75, 90K per year over 5 years.

What am I worth.

Can I sell up and retire?

I do, obviously know the figures, but it is a good chance for FTB to put his economics degree into place.

I do respect FTBuyer. He has a brain on his shoulders and should concentrate his efforts on making his own success rather than evaluating/criticising mine

Look forward

I think you're not understanding the reason for my previous post. Sure you have done very VERY well indeed for saying you started out on £15k.

But i'm looking at today, and how to best make the money you have today (equity) work best for you in the future.

If the above is accurate you would get £160k min (in a bank) against £100k from property.

In both cases you would pay tax, at 40% (as your a big earner). But you have to take into account capital gains tax. This is where you probably need professional advice rather...

I hope you don't mind evaluating your financies, it is a public forum after all. As for me, I do what I do, I invest in what I believe - and currently I think property is due for big falls. The hard part is the timing.