BTL ..... who should pay?

chucky

Thrugelmir wrote: »

The trouble is Mr C is that the world constantly changes. What worked yesterday may not work tmorrow. In business you constantly have to adapt to changing market conditions. Created by all sorts of events.

A huge number of people have no understanding of how the property bubble was created. They all cite historical data to support their view that upward trends will generate huge returns in the medium term. A positive return above inflation in itself is not enough for them.

No Lloyds doesn't monoplise I agree. But the Mortgage Works lends now on the basis of 60% LTV. So not sure where 40% deposits plus buying and setting up costs are going to found by future BTL investors.

With regards to tax efficiency. To grow a business you need to generate cash (after tax), in order to reinvest. Or how will you acquire the next property to grow your portfolio? As pointed out above 40% deposits are required, so are of the reach of most people. In order to generate cash you need to repay capital in order to reduce interest payable.

On secondary note. If its so obviously tax efficent. Wouldn't that make it a target for changes in taxation rules? I would say 100% yes. Particularly as tax revenues have to be increased.

Ok your BTL empire is a pack of cards. As one property fails for whatever reason you are forced to sell it. Possibly selling another to clear the negative debt. And so on. At the end you are left with your family home which was remortgaged to provide the initial deposit. This too is sold to clear the debt.

you've generalised a lot here and now moved on to what could happen in the future...

i'm happy with BTL as an alternative investment. it works for me.

i'm getting more and more intrigued at your posts as it insinuates that BTL is dead and will no longer exist.

where are the people that obviously can't buy and raise deposits going to live???

Thrugelmir

JonnyBravo wrote: »

I really do hope you don't think businesses are worth more than anyone is prepared and able to pay for them?

Valuation is judgemental. Not a precise science. What people pay to invest is an individual decision.

What would you value a Company with a £500k turnover and a £2 million loss at? Minimal future orders but enormous potential. In a sense a punt.

chucky

JonnyBravo wrote: »

OK.

Heres a house in Stoke (not an area I know well, picked due to watching a prog the other day on TV). 3 bed semi. 60k.

http://www.rightmove.co.uk/property-for-sale/property-23272141.html?maxPrice=60000&displayPropertyType=houses&oldDisplayPropertyType=houses&pageNumber=1&fromSummary=true&backToListURL=%2Fproperty-for-sale%2Ffind.html%3FsearchType%3DSALE%26locationIdentifier%3DREGION%255E1271%26radius%3D0.0%26displayPropertyType%3Dhouses%26minBedrooms%3D%26maxBedrooms%3D%26minPrice%3D%26maxPrice%3D60000%26maxDaysSinceAdded%3D%26retirement%3D%26partBuyPartRent%3D%26_includeSSTC%3Don%26sortByPriceDescending%3D%26primaryDisplayPropertyType%3D%26secondaryDisplayPropertyType%3D%26oldDisplayPropertyType%3D%26oldPrimaryDisplayPropertyType%3D%26oldSecondaryDisplayPropertyType%3D%26newHome%3D%26auction%3Dfalse%26x%3D85%26y%3D16

Heres another for rent. 3 bed semi. Same postcode.

http://www.rightmove.co.uk/property-to-rent/property-19191352.html?maxPrice=400&minBedrooms=3&maxBedrooms=3&pageNumber=1&fromSummary=true&backToListURL=%2Fproperty-to-rent%2Ffind.html%3FsearchType%3DRENT%26locationIdentifier%3DREGION%255E1271%26radius%3D0.0%26displayPropertyType%3D%26minBedrooms%3D3%26maxBedrooms%3D3%26minPrice%3D%26maxPrice%3D400%26maxDaysSinceAdded%3D%26retirement%3D%26sortByPriceDescending%3D%26_includeLetAgreed%3Don%26primaryDisplayPropertyType%3D%26secondaryDisplayPropertyType%3D%26oldDisplayPropertyType%3D%26oldPrimaryDisplayPropertyType%3D%26oldSecondaryDisplayPropertyType%3D%26letType%3D%26letFurnishType%3D%26houseFlatShare%3Dfalse%26x%3D81%26y%3D13

£375/month. Lets assume rents for £350. x10 months. = £3500 (10 months is overly cautious but I'll play your silly game)

60k @ 5% = £3k
As we're doing realistic lets assume 15k deposit and 45k @ 5% = £2250

This took me 3 minutes and was the first property I saw on Rightmove for Stoke and under 60k. The rental one was not the first they were renting at £395 but though I'd play it cautious.
Not even researched and something which isn't a disaster in 3 minutes.

Next.

it was too easy a point to prove :T

IveSeenTheLight

Thrugelmir wrote: »

With regards to tax efficiency. To grow a business you need to generate cash (after tax), in order to reinvest. Or how will you acquire the next property to grow your portfolio? As pointed out above 40% deposits are required, so are of the reach of most people. In order to generate cash you need to repay capital in order to reduce interest payable.

On secondary note. If its so obviously tax efficent. Wouldn't that make it a target for changes in taxation rules? I would say 100% yes. Particularly as tax revenues have to be increased.

Ok your BTL empire is a pack of cards. As one property fails for whatever reason you are forced to sell it. Possibly selling another to clear the negative debt. And so on. At the end you are left with your family home which was remortgaged to provide the initial deposit. This too is sold to clear the debt.

Thruglemir, you obviously are an intelligent business minded person, successful in your specific business.

BTL is however a completely different type of business.
It's not a stack of cards, you are over simplifying it I think to try and make your point.

As for taxation rules, yes they can change, they did last year when capital gains changed to a flat rate 18%. Many on here thought that would be the catalist for BTL to sell up, it wasn;t.

The tax rules that we are talking about is income tax.
If that is to change then it will change for everyone.

Puting it simply, Income tax is to be paid on profit from renting out the property, therefore it makes good BTL sense to keep the mortgage interest high, thus increasing the costs.

Why do this?
Because it means that less profit is taxed.

Why would you do this as you essentially want profit?
How does your business grow?
The profit is then released from the property by way of the mortgage thus this is how the moeny can be re-invested without incurring Income Tax

Note: I personally do not follow this, however I run just a small BTL business and follow a different business model to reduce my risk.

JonnyBravo

Thrugelmir wrote: »

With regards to tax efficiency. To grow a business you need to generate cash (after tax), in order to reinvest. Or how will you acquire the next property to grow your portfolio? As pointed out above 40% deposits are required, so are of the reach of most people. In order to generate cash you need to repay capital in order to reduce interest payable.

How will I acquire my next property? Who said I'm going to anytime soon? Why do you assume every landlord wants 300 properites? I'm happy letting it pay itself off thanks..... and yes that includes capital.

Thrugelmir wrote: »

On secondary note. If its so obviously tax efficent. Wouldn't that make it a target for changes in taxation rules? I would say 100% yes. Particularly as tax revenues have to be increased.

Indeed so. Hence see above.

Thrugelmir wrote: »

Ok your BTL empire is a pack of cards. As one property fails for whatever reason you are forced to sell it. Possibly selling another to clear the negative debt. And so on. At the end you are left with your family home which was remortgaged to provide the initial deposit. This too is sold to clear the debt.

Eh?
You see the world in simple back and whites. It really isn't like that. Really.
My mortgage is paid off in 23 months and my BTL will be mortgage free inside 10 years at current projections.
Learn to see the world for the shades of grey that really exist.

System

JonnyBravo wrote: »

OK.



Next.

Did you factor in the fact that that property will be worth 18k soon?

JonnyBravo

Joeskeppi wrote: »

Did you factor in the fact that that property will be worth 18k soon?

No, I forgot. But then I didn't factor any negotiation into the price either. I might get it for £18k with my negotiating skills.

Thrugelmir

chucky wrote: »

you've generalised a lot here and now moved on to what could happen in the future...

i'm happy with BTL as an alternative investment.

i'm getting more and more intrigued at your posts as it insinuates that BTL is dead and will no longer exist.

where are the people that obviously can't buy and raise deposits going to live???

I have merely generalised as we've covered lots of ground in exchanges previously.

The future is what matters. Understand the past, as events are caused by something. The future property market will be shaped by current market changes. The art is to spot whether they are positive or negative.

If you are already in BTL thats different to investing today. There is a distinction. BTL isn't dead its always existed. The growth of BTL mortgages from 30,000 in 1999 to around 1.2 million currently. Shows thats it a more recent fad though. It hasn't yet proved itself to be a long term profitable business.

There are far cheaper ways of providing social housing than BTL speculation. As is happening locally here. A housing association has bought a 500 house development direct from the developer. Cheaper to buy than rent for them.

mewbie_2

JonnyBravo wrote: »

OK.

Heres a house in Stoke (not an area I know well, picked due to watching a prog the other day on TV). 3 bed semi. 60k.

http://www.rightmove.co.uk/property-for-sale/property-23272141.html?maxPrice=60000&displayPropertyType=houses&oldDisplayPropertyType=houses&pageNumber=1&fromSummary=true&backToListURL=%2Fproperty-for-sale%2Ffind.html%3FsearchType%3DSALE%26locationIdentifier%3DREGION%255E1271%26radius%3D0.0%26displayPropertyType%3Dhouses%26minBedrooms%3D%26maxBedrooms%3D%26minPrice%3D%26maxPrice%3D60000%26maxDaysSinceAdded%3D%26retirement%3D%26partBuyPartRent%3D%26_includeSSTC%3Don%26sortByPriceDescending%3D%26primaryDisplayPropertyType%3D%26secondaryDisplayPropertyType%3D%26oldDisplayPropertyType%3D%26oldPrimaryDisplayPropertyType%3D%26oldSecondaryDisplayPropertyType%3D%26newHome%3D%26auction%3Dfalse%26x%3D85%26y%3D16

Heres another for rent. 3 bed semi. Same postcode.

http://www.rightmove.co.uk/property-to-rent/property-19191352.html?maxPrice=400&minBedrooms=3&maxBedrooms=3&pageNumber=1&fromSummary=true&backToListURL=%2Fproperty-to-rent%2Ffind.html%3FsearchType%3DRENT%26locationIdentifier%3DREGION%255E1271%26radius%3D0.0%26displayPropertyType%3D%26minBedrooms%3D3%26maxBedrooms%3D3%26minPrice%3D%26maxPrice%3D400%26maxDaysSinceAdded%3D%26retirement%3D%26sortByPriceDescending%3D%26_includeLetAgreed%3Don%26primaryDisplayPropertyType%3D%26secondaryDisplayPropertyType%3D%26oldDisplayPropertyType%3D%26oldPrimaryDisplayPropertyType%3D%26oldSecondaryDisplayPropertyType%3D%26letType%3D%26letFurnishType%3D%26houseFlatShare%3Dfalse%26x%3D81%26y%3D13

£375/month. Lets assume rents for £350. x10 months. = £3500 (10 months is overly cautious but I'll play your silly game)

60k @ 5% = £3k
As we're doing realistic lets assume 15k deposit and 45k @ 5% = £2250

This took me 3 minutes and was the first property I saw on Rightmove for Stoke and under 60k. The rental one was not the first they were renting at £395 but though I'd play it cautious.
Not even researched and something which isn't a disaster in 3 minutes.

Next.

That's great - I note it says "needs updating", but maybe you can get cheaper tenants in. Possibly not a property that you can just rent out straight away though.

But OK - 3000 out and 3500 in. 500 a year profit. Before costs. I'm not an expert obviously in letting out property but I assume there are legal fees to buy, and legal fees to let. Then a certain amount of money set aside for normal repairs - new boiler, roof, whatever. Surely would reduce that 500 a bit - lets be ridiculously generous and call it 100 a year profit.

So I have borrowed 60k, I have tenants to look after (can't afford a management deal on those figures) and I'm making 100 a year?

JonnyBravo

mewbie wrote: »

That's great - I note it says "needs updating", but maybe you can get cheaper tenants in. Possibly not a property that you can just rent out straight away though.

Did it? OK, I'll change it for one of the better ones at £395.... have a look there are loads. Don't you see that not every property is going to be rentable and add up anyhow?

mewbie wrote: »

But OK - 3000 out and 3500 in. 500 a year profit. Before costs. I'm not an expert obviously in letting out property but I assume there are legal fees to buy, and legal fees to let. Then a certain amount of money set aside for normal repairs - new boiler, roof, whatever. Surely would reduce that 500 a bit - lets be ridiculously generous and call it 100 a year profit.

So I have borrowed 60k, I have tenants to look after (can't afford a management deal on those figures) and I'm making 100 a year?

Legal fees are a once off as is most of the expensive stuff..... actually I've never replaced a roof..... (extended one... but then I now live under it.)
The point is it doesn't "make" £100 a year. Eventually the mortgage is paid and you have an asset which in effect someone else has paid for.

As for the agents.... too right.... I don't use them. Money for nothing. Get a good tenant and then keep them with competitive rent. Had my tenant for coming up 4 years now. ZERO voids in 4 years! Stick that in your sum.

Look mewbie just cos you don't like something don't pretend it can't work. Just cos it doesn't work in every case don't assume it can't work in some cases. And granted there are many who are and will continue to !!!!! it up..... bit like at work I suspect.... some colleagues know what they're doing, some haven't got a clue.

Your stance, frankly, makes you look stupid, whereas of course all you really want to get across is you don't agree with it morally...... I suspect.