BTL ..... who should pay?

IveSeenTheLight

Thrugelmir wrote: »

However looking ahead and in particular for investors that bought in the past 5 years the prospects aren't as good.

Here's the thing, both my BTL's were bought in the last 5 years.
One in Jan 2007.
Both are on schedule (actually currently ahead of schedule thanks to lower interest rates) to be mortgage free within the next 8 years.

This is why I do not agree with the generalisation that BTL does not work and within the last few years timeframe mentality.

There will always be good property investment oppertunities, at all times. The knack is to do the market research, find them and make sure the figures stack up.

Thrugelmir wrote: »

I understand your points. But I have severe reservations. Not in BTL in particular but on the medium term credit/lending markets. This is going to affect any form of leveraged , borrowed, geared investment.

You may have a point, you may not, only time will tell I guess.
If the credit / lending markets do turn out as per your reservations then choices will have to be made, there are always options

Thrugelmir wrote: »

Lets watch events unfold. I would say plenty is going to happen in the next 12 months that will cause debate on this forum.

And has caused debate in the last 24 months without really seeing the impact some on here believe will happen.
It may happen in the future, it just hasn't materialised as yet and may never will.

Thrugelmir wrote: »

By the way if you are repaying capital then your BTL model works. My issue is that unfortunately many aren't. This may well hit your investment directly as the market has yet to react to this problem.

A BTL model should always repay the capital, it's just whether investors withdraw that capital to invest elsewhere is the difference.
We've shown how there is benefits to doing such, but as a small investor, I'm far happier to reduce the risk via my rapid repayment model

HammersFan

By the way if you are repaying capital then your BTL model works. My issue is that unfortunately many aren't. This may well hit your investment directly as the market has yet to react to this problem.[/QUOTE]

Some BTL models suggest using interest only loans on one property (hence lower monthly payments on first property) to generate surplus that is used to pay down a re-payment loan on another, second property. This means second property is owned outright at the end of the mortgage term (and is thus, in effect, paid for by the tenants of the first property. Although first property still has all mortgage debt outstanding it is likely to be worth more at the end of the mortgage term (hence also releasing a profit). Of course to make this work, you need a decent deposit for both properties.

dopester

IveSeenTheLight wrote: »

Here's the thing, both my BTL's were bought in the last 5 years.
One in Jan 2007.
Both are on schedule (actually currently ahead of schedule thanks to lower interest rates) to be mortgage free within the next 8 years.

All this explaining of the model, and the money you and your tenants are ploughing into paying the mortgage debts you took on, with you toiling away in a distant land.

The way I see things you might as well be proudly saying your BTLs are on the legendary island of of Atlantis.

Maybe not quite as bad as that, but I can see economic reasons why each of your £200K BTLs in Aberdeen may fall to £15K value within the next 5 years, or maybe 10 years if the process drags out, with only a very small rental value, if any.

What sort of financial security / pension is that all about?

IveSeenTheLight

dopester wrote: »

All this explaining of the model, and the money you and your tenants are ploughing into paying the mortgage debts you took on, with you toiling away in a distant land.

The way I see things you might as well be proudly saying your BTLs are on the legendary island of of Atlantis.

Maybe not quite as bad as that, but I can see economic reasons why each of your £200K BTLs in Aberdeen may fall to £15K value within the next 5 years, or maybe 10 years if the process drags out, with only a very small rental value, if any.

What sort of financial security / pension is that all about?

Dopester, I have never mentioned the BTL values, however you are quite right, they could fall in value in the next 5 or 10 years, I have never doubted that. I can even show you when I projected that property needed to fall 22%
http://forums.moneysavingexpert.com/showpost.html?p=12813653&postcount=6
I do very much doubt that a £200k property will fall 92.5% to £15k;)

I don't intend to retire in the next 5 or 10 years though
I've said they are 30-35 year investments

Like I also said, the investment is turning out better than I had planned, with the rapid repayment schedule showing mortgage free status earlier than expected.

There's no point in your hypothetical tin hat projections as it is very unlikely to materialise

Thrugelmir

HammersFan wrote: »

By the way if you are repaying capital then your BTL model works. My issue is that unfortunately many aren't. This may well hit your investment directly as the market has yet to react to this problem.

Some BTL models suggest using interest only loans on one property (hence lower monthly payments on first property) to generate surplus that is used to pay down a re-payment loan on another, second property. This means second property is owned outright at the end of the mortgage term (and is thus, in effect, paid for by the tenants of the first property. Although first property still has all mortgage debt outstanding it is likely to be worth more at the end of the mortgage term (hence also releasing a profit). Of course to make this work, you need a decent deposit for both properties.[/QUOTE]

The whole recent concept of BTL was built on interest only loans. As apparently as I am repeatably informed, thats its tax efficent to do so. Despite this small offfset providing little hedge against a falling market, rising interest rates and a tighter lending policy on commercial property lending.

The deposits were borrowed in the main. Using existing increased property valuations to fund additional purchases. By the end the BTL market had created its own upward spiral.

Thrugelmir

IveSeenTheLight wrote: »

Here's the thing, both my BTL's were bought in the last 5 years.
One in Jan 2007.
Both are on schedule (actually currently ahead of schedule thanks to lower interest rates) to be mortgage free within the next 8 years.

This is why I do not agree with the generalisation that BTL does not work and within the last few years timeframe mentality.

There will always be good property investment oppertunities, at all times. The knack is to do the market research, find them and make sure the figures stack up.



You may have a point, you may not, only time will tell I guess.
If the credit / lending markets do turn out as per your reservations then choices will have to be made, there are always options



And has caused debate in the last 24 months without really seeing the impact some on here believe will happen.
It may happen in the future, it just hasn't materialised as yet and may never will.



A BTL model should always repay the capital, it's just whether investors withdraw that capital to invest elsewhere is the difference.
We've shown how there is benefits to doing such, but as a small investor, I'm far happier to reduce the risk via my rapid repayment model

Whilst you have done your research. You cannot dismiss the fact that many didn't. The market was self driven with BTL investors competing with themselves by the end. Whether you run a sucessful business , investment or whatever. Timing is the key. Always have an exit strategy.

I could invest my entire pension scheme into BP shares until I retire. High yielding, solid company. Tax efficent investment. Trouble is I have no idea what may change in the time frame. All outside my control. I certainly wouldn't be working on a 30 year view.