Leverage, BTL and Shares

Thrugelmir

IveSeenTheLight wrote: »

Over the lifetime of a mortgage, please reflect on a time where we've seen negative valuation in the UK when compared to the purchase price.

Depending on factors such as timing of purchase, void periods, unpaid rents, other financial committments or lack of income etc there are more risks with property than purely negative equity.

BTL has become an "investment" in recent times whereas more normally it should be classified as a business with all the inherent risks of same.

As with not taking out insurance. The attitude that its "not going to happen to me" is a dangerous assumption. Evicting the tenants from hell is more expensive than many people realise.

As with any business some people are successful and others not. My concern is that many jumped upon the BTL bandwagon without understanding the full implications in more recent years.

Generali

vivatifosi wrote: »

Many thanks Mr M, you answered my question before I had the chance to ask it.

For the most part FTSE-100 investors don't come away with a 100% loss. I'm scratching my head trying to think of the last major company that went under, especially given that when a few banks started teetering they were bailed out.

Enron, Northern Rock, Bradford and Bingley, Network Rail were all 100% losses to holders of equity for example.

Thrugelmir

Generali wrote: »

Enron, Northern Rock, Bradford and Bingley, Network Rail were all 100% losses to holders of equity for example.

Polly Peck further back.

The majority of large PLC failures do have one thing in common. An element of fraud, even if just in an accounting nature.

abaxas

IveSeenTheLight wrote: »

Only if you sell for a loss.
It's quite possible to go into negative equity, ride the storm and then make a substantial profit on top of the rental rield that's accrued over the years.

Over the lifetime of a mortgage, please reflect on a time where we've seen negative valuation in the UK when compared to the purchase price.

That is dependent on area.

As ever, places improve, others go down the !!!!!! pan.

Nothing is ever static.

Generali

IveSeenTheLight wrote: »

Only if you sell for a loss.
It's quite possible to go into negative equity, ride the storm and then make a substantial profit on top of the rental rield that's accrued over the years.

Over the lifetime of a mortgage, please reflect on a time where we've seen negative valuation in the UK when compared to the purchase price.

A classic investment mistake is to hang on to the losers and sell the winners. Sometimes it's just better to cut and run.

Having said that, if the income is good then the value of the asset is less important.

IveSeenTheLight

Generali wrote: »

A classic investment mistake is to hang on to the losers and sell the winners. Sometimes it's just better to cut and run.

Having said that, if the income is good then the value of the asset is less important.

I've highlighted the crux of BTL investment.
It's for the rental yield.

The properties I've invested in,gives me a better return than if I had simply invested the deposit.

The tenants are paying down the debts, ensuring that each month, the profits increase.

IveSeenTheLight

abaxas wrote: »

That is dependent on area.

As ever, places improve, others go down the !!!!!! pan.

Nothing is ever static.

Agreed, nothing is ever static.
Please however show me any area that has property valued at less than they previously were over the term of a standard mortgage (25 years)

I bought a BTL flat four years ago.
The capital has been reduced by over 25% during that 4 years.
The area (Aberdeen) the property is in is showing a higher average than it was when I bought, infact there's been an approx 23.89% increase in average value

http://www.ros.gov.uk/pdfs/la_jan07.pdf

http://www.ros.gov.uk/pdfs/la_nov_10.pdf

I'm projecting that when I may consider selling (in say another 23 years) that the value will be even higher

Bangerchick

There is a signficant risk that, should you need to sell in the shorter term (personal circumstances, forced sale from lack of rental income or problems with the properties, etc. etc. etc.) you may be in NE. So while I agree that it is a sound investment over 25 years, there is a risk in the shorter term. Of course, if you're smart, you'll have a fund to allow you to ride out the periods where rental income drops or to pay for major repairs, but I suspect there are many BTL investors who are winging it a little bit!

IveSeenTheLight

Bangerchick wrote: »

There is a signficant risk that, should you need to sell in the shorter term (personal circumstances, forced sale from lack of rental income or problems with the properties, etc. etc. etc.) you may be in NE. So while I agree that it is a sound investment over 25 years, there is a risk in the shorter term. Of course, if you're smart, you'll have a fund to allow you to ride out the periods where rental income drops or to pay for major repairs, but I suspect there are many BTL investors who are winging it a little bit!

There is a risk with any investment and certainly BTL requires there to be a long term strategy.
You therefore should plan around that long term strategy and consider the risks and implications that go with that.

If you take consideration of these risks, you can mitigate largely against them.

My personal void rate is sitting at 0.5% or roughly 2 days per property over the last 4 years.
You will of course consider that the last four years were potentially higher risk for BTL invesment with the recession and increasing unemployment, wage freezes etc.

Rainmaker_uk

blueboy43 wrote: »

GEC / Marconi would be a great example.

Established in 1889, by 1985 only BP and Shell had bigger market capitalisations in the UK.

Lord Weinstock ran it for close to 35 years.

Once he left, it was wrecked and almost worthless within a decade.

Connaught was not a great bet either