BTL and gross yields

jamesn_2

pbradley936 wrote:

I hope you are right and in Oxford you have a steady student population, but do take into consideration income tax, voids, gas safety checks and lots of other expenses that people forget about (or do not realise they have to pay)

Working on basis of 1 month in 12 void, percentage of property price for maintenance & repairs. Income tax not too much of a problem: the interest element of the mortgage is tax deductable (as are repairs). I think I will be making a loss for the first few years so tax is not a concern!

James

F_T_Buyer

jamesn wrote:

Working on basis of 1 month in 12 void, percentage of property price for maintenance & repairs. Income tax not too much of a problem: the interest element of the mortgage is tax deductable (as are repairs). I think I will be making a loss for the first few years so tax is not a concern!

James

But why would you take on a cash flow negative investment? That just seems silly.

RHemmings

pbradley936 wrote:

I hope you are right and in Oxford you have a steady student population, but do take into consideration income tax, voids, gas safety checks and lots of other expenses that people forget about (or do not realise they have to pay)

Also, is this supposed to be a long or short term investment? In some university towns the universities have built large numbers of student halls of residence, decimating the BTL market in those towns.

whambamboo

F_T_Buyer wrote:

But why would you take on a cash flow negative investment? That just seems silly.

exactly. The capital growth potential seems limited with current high prices. He can't get a repayment mortgage for tax reasons, so he's not paying off the debt, only interest on the loan. He's losing money every month, more with voids exarcebating this.

And all for what? A speculation that the value of the property will go up. You might as well check your spam mail for penny stock tips.

It's like buying shares, but instead of them paying dividends, you have to pay dividends to the company! What fool would do that?

And let's not forget that historically stockmarket returns have been higher than property.

jamesn_2

F_T_Buyer wrote:

But why would you take on a cash flow negative investment? That just seems silly.

It is only as silly as any normal house purchase. It will cost me for the first few years but after 25 I will have a house (repayment mortgage).

WesternExpress

RHemmings wrote:

Also, is this supposed to be a long or short term investment? In some university towns the universities have built large numbers of student halls of residence, decimating the BTL market in those towns.

And no more so than in Oxford as the collages tend to give 3 years of accommodation in the collage buildings.

jamesn_2

whambamboo wrote:

exactly. The capital growth potential seems limited with current high prices. He can't get a repayment mortgage for tax reasons, so he's not paying off the debt, only interest on the loan. He's losing money every month, more with voids exarcebating this.

And all for what? A speculation that the value of the property will go up. You might as well check your spam mail for penny stock tips.

It's like buying shares, but instead of them paying dividends, you have to pay dividends to the company! What fool would do that?

And let's not forget that historically stockmarket returns have been higher than property.

To take your points individually:

Capital growth - agree here. My aim is not to make short term capital gains.

Mortgage - it will be repayment although only the interest element is tax deductable.

Voids exacerbating - my calculations include 1 month a year void which is national average.

Stockmarket - will be investing here also. Note that stockmarket does provide better returns but that BTL investment is very heavily geared. I can't borrow £220k at 5% to invest in shares.

James

F_T_Buyer

whambamboo wrote:

It's like buying shares, but instead of them paying dividends, you have to pay dividends to the company! What fool would do that?

I was going to use that analogy.

A cash flow negative property investment is exactly the same as paying a company to own their shares.

If you were to propose this to an investor/bank, even an amatuer investor, they will laugh at you. But when it comes to property people through reasoning out of the window!


Take a look at the US and what's happening there. Now look at the reasons for falling prices. Now look at what you could buy in the US compared to the UK.

jamesn_2

WesternExpress wrote:

And no more so than in Oxford as the collages tend to give 3 years of accommodation in the collage buildings.

3 years in college is still quite unusual. Anyway, hopefully not aiming at the student market - too much hassle!

James

F_T_Buyer

jamesn wrote:

It is only as silly as any normal house purchase. It will cost me for the first few years but after 25 I will have a house (repayment mortgage).

I wish you the best of luck, but your reasoning is flawed.

How will you not be losing money monthly after the first few years? I assume you mean you will be reducing the debt so the interest element is smaller, hence giving a positive cash flow.

But as you stated you will be losing money monthly, why don't you just save the money you would put towards the debt [capital] repayments. You would not need to minus your loses, therefore in a few years you could buy, and be better off.

The only way BTL makes sense is if the rent covers your interest, voids, maintenance and hassle. Some would argue they bought years ago, so would not want to sell, which is fine. But to get into a loss making investment from the outset is absurd.