is it wise to invest in buy to let now?

Thrugelmir

colinbloke wrote: »

Of course it would be safer just to use savings to pay mortgage off early but this would still take me about 10-12 years on current earnings. im looking for a medium term investment with the potential for small income yearly and decent return say 5 years time. Im just not sure or expirienced enough with shares/ gold to believe i could get a good return in this time.

Whilst the returns may appear attractive due to the appreciation of property in the past 10 years ( the real gains now were actually made between 1999 and 2004). You have have to consider the downsides in the current economic climate and medium term.

(a) Property prices could fall further
(b) Profit on property rental is subject to income tax
(c) Interest rates could rise
(d) You may not let your property all the time, ie void periods and could encounter a tenant who doesnt pay up.
(d) Taxable losses on property rental income aren't offsetable against other income sources.
(e) Market rents could fall
(f) Changes in taxation rates to capital gains tax and income tax would reduce any future profits.
(g) Possibly the rules on how much interest is allowed to be offset against rental income could change in the near future.

By investing in property , you are taking a long term view. Certainly don't bank on instant profits. To be a property investor you need capital at the outset. By leveraging on debt you are exposing yourself to enormous risk.

Katie-Kat-Kins

Interesting thread.....

I'm considering getting into BTL next year.

I will at that point have a substantial deposit, and I am looking to get a better return from my savings than I would in a savings account.

I am currently living mortgage free in a property owned by my husband. Part of the logic of buying a property is having a foothold in the property market and some security.

I would be happy if I could get a property that would pay for itself. I would be content if i could get rent in that would pay the mortgage with a bit left over to save towards repairs. Obviously if I could get an additional income that would be great but I would be happy to have a property that wasn't really costing me too much but that I was gaining in equity as the mortgage is paid off.

Is this acheivable?? Or completely daft??

I'm a bit reluctant to lock the money back into a savings scheme that will mean there are heavy penalties for early withdrawal, especially given the fact that my returns are looking so rubbish at present.

An alternative for me would be to buy agricultural land and rent this out, perhaps to horse owners for grazing, obviously the initial outlay would be lower but the return would be lower too.

I just feel that I want to do something tangible with this money that will hopefully at some stage make my life a little easier. The original plan had been to use it to buy my first home, but with the housing boom I put this off due to high prices and then met my husband and moved into his home so this became unnecessary.

GDB2222

With interest rates so low, I can see why people with savings earning next to nothing are considering BTL. They risk a capital loss but they hopefully will enjoy much greater income. That's for people paying 100% of the price out of savings.

However, borrowing 100% of the price (as you would be apart from your £5k savings) seems to be a hiding to nothing.

"using my offset tracker mortgage overdraft to raise deposit requied currently on 1.25% rate. "

So, you can borrow at 1.25%? If this is flexible, you could just borrow the maximum and bung it on deposit - earning roughly 2% margin for doing nothing. You would be taking a pretty minimal risk of bank failure.

Thrugelmir

KatP wrote: »

I will at that point have a substantial deposit, and I am looking to get a better return from my savings than I would in a savings account.

I'm a bit reluctant to lock the money back into a savings scheme that will mean there are heavy penalties for early withdrawal, especially given the fact that my returns are looking so rubbish at present.

You are comparing the safety of a deposit account (where your money is guaranteed even if the ban goes bust) to a high risk strategy. Where the returns are not guaranteed.

You can get 5% deposit rates by locking money away in an ISA. So how much better return do you expect from property currently?

There are alternatives to savings schemes where access is almost instant. What happens if you needed or wanted to sell your investment property quickly? You would suffer a heavy penalty in the form of a lower price in order to sell the property quickly.

Most of all you ideally need a diversified investment portfolio. You have one house already so buying another increases your exposure to a particular type of investment.

Katie-Kat-Kins

Actually I don't have a house of my own at all. This would be my first.

I can't put all the money in an ISA, I am already using much of my ISA allowance for my regular savings. It is difficult to get decent returns on savings otherwise, most rates are so low that the effect of inflation means that the money is actually being depleated. If you take a more high risk account then your money is not protected, if the stock market takes a nose dive.

Chances are that I would not need to sell in a hurry, I have a decent income and will continue to save for a rainy day. However with an investment property I could sell when I want to rather than having to wait for fixed terms on savings schemes to end or pay penalties. I could also live in the investment property if necessary.

I believe that my current strategy leaves me too heavily exposed to the variences of the stock market as both my "deposit money" is dependant upon the stock market and my pensions are. My other savings are in a standard cash ISA.

Thrugelmir

KatP wrote: »

Actually I don't have a house of my own at all. This would be my first.

I can't put all the money in an ISA, I am already using much of my ISA allowance for my regular savings. It is difficult to get decent returns on savings otherwise, most rates are so low that the effect of inflation means that the money is actually being depleated. If you take a more high risk account then your money is not protected, if the stock market takes a nose dive.

Chances are that I would not need to sell in a hurry, I have a decent income and will continue to save for a rainy day. However with an investment property I could sell when I want to rather than having to wait for fixed terms on savings schemes to end or pay penalties. I could also live in the investment property if necessary.

I believe that my current strategy leaves me too heavily exposed to the variences of the stock market as both my "deposit money" is dependant upon the stock market and my pensions are. My other savings are in a standard cash ISA.

Rates of return are positive even on deposit accounts taking into inflation into account currently.

If you want high returns then you have to accept high risk. Thats a personal choice. Pensions may not be exciting but at least benefit from a Government top up. That over the years compounds the return.

I'm not sure why you view property as being low risk. The myth of a one way bet is unproven. Every market moves in cycles of boom and bust.

Thermidor

Rick62 wrote: »

You also have to consider if you got a rouge tenant who didn't pay their rent, lets say 3 months and another 6 months to get them out and three months to get a new tenant and several thousand in legal fees. If your budget couldn't afford this then you shouldn't consider BTL.

What's a 'rouge tenant'?:D

Rick62

No idea - I meant of course 'rogue', as in rascal/swindler.

Nosht

I would wait till prices fall.


Regards,

N.

mlz1413

To Colinkbloke
you are borrowing on an onset mortgage to buy a bottom of the market property.
so if interest rates change both your mortgage and your B2L deposit will cost you more.
your probably looking to buy a flat which means you will have management charges to pay as well.
your flat is probably going to be 1 bed of which there are already LOTS of to choose from.
you know nothing about being a LL so will face issues with tenants whilst you learn all the rules.

Also why to do say your income will increase by £350pm when the property is rented? If you receive £350pm in total rent then most will go out on mortgage payments, and I can't imagine a £65k flat will command much more rent than that per month.