Is BTL now the best retirement investment?

Graham_Devon

robmatic wrote: »

Equities. Boom! Next?

AIM market.

julieq

Graham, you're not on a knife edge, because you can raise prices. Prices don't magically clamp themselves to yesterday's figure.

And you're only on a £260 profit if you're highly leveraged and you've chosen a low yield type of property. There's no reason why that needs to be the case. Either way it's a decent play on a bet to nothing against capital growth, very limited downside and excellent potential upside, i.e. a great opportunity. You can even get someone to fund the bet for you.

You're setting up a chain of assumptions that make BTL in general look unprofitable. And that's foolish, because it's actually not unprofitable in practice. As with all businesses there are good and bad ones, but it's pretty difficult not to be making money, and there will be capital gains sooner than you think now. We're in a trough of confidence and funding, and there's really only one direction you can go from there. Things tend not to go downhill from the bottom of the hill.

HAMISH_MCTAVISH

robmatic wrote: »

This is obviously a very area dependent business then, because here in Edinburgh that's about double the typical yield.

It is indeed area dependent.

The national average is 5% and climbing, some are less, some are more.

See, I thought the attraction of BTL was that after 25 years someone else has bought you a house.

It is.

With a 25% cash outlay at the start of the 25 year period you've practically bought the bloomin' thing at outset yourself!

Hardly.

And you get that back over time.

5% average? Are we assuming that they're just not going to go up... at all?

5% average for mortgage rates, current best buy on a 25% deposit is around 3.79%

But bank margins are at record highs.

Its a certainty that base rates will rise eventually. But it's equally inevitable that bank margins will fall.

I think 1 month void per year seems reasonable as an assumption, but whose time is involved here for marketing and maintenance? Or PAT tests and gas safety checks? And you should probably factor in furnishing at outset and decorating every 2 years.

I'm assuming minor maintenance/decoration is self-done. Major maintenance a contractor.

If you achieved a real return of 6% p.a. with equities then you could return 4 times your stake at the end of a 25 year period.

Well that would be a nominal return of 11% at the moment..... Year in and year out. Virtually impossible to achieve consistently for 25 years.

Graham_Devon

julieq wrote: »

Graham, you're not on a knife edge, because you can raise prices. Prices don't magically clamp themselves to yesterday's figure.

You can raise prices. Don't mean you will get someone paying it. Oh, if only it was as simple in all business facing a challenge...."just raise prices, cha ching, done". Wonder why no ones thought of that before? Wonder why landlords have gone bust before!? Just doesn't make sense when you can just raise prices.

And you're only on a £260 profit if you're highly leveraged and you've chosen a low yield type of property.

I think you need to read the thread jules. This is all based on Hamish's 8.1% yield rental property. It's his own sums, on his pretty high yield.

https://forums.moneysavingexpert.com/discussion/3260726

Cleaver

Here's what's quite funny about this thread. We hear that most people don't pension plan anywhere near enough, and a worrying amount of people don't do anything. It's quite staggering how many young people don't even think about pensions and just think that everything is okay.

So, if you're in your twenties / thirties and you are actively thinking about long term investments, such as a property to rent out, or a stocks and shares type approach, then you're doing something right and will probably go a long way towards sorting yourself for old age.

This thread is like people arguing about whether eating mainly vegetables and going swimming or eating mainly fruit and going running is best to lose weight. The point is that both would be good for losing weight, in the same way that both a traditional pension and a long term BTL will be good for your pension, providing you fully understand and carefully manage both. Either of them will provide better than doing f*ck all, which is what a lot of people seem to do nowadays.

julieq

Graham, what about average yield? Bearing in mind rents go up exponentially over time? How does that affect YOUR calculations?

I would say that 8% over 10 years is massively on the low side.

And as to whether rents can and will go up, tell me what is happening to rents at the moment? House prices stagnant or decreasing, rentals going which way exactly? Oh yes, up. And why? Because there are too few houses for people who want homes. THAT is why BTL is fundamentally a strong proposition.

Graham_Devon

HAMISH_MCTAVISH wrote: »

I'm assuming minor maintenance/decoration is self-done. Major maintenance a contractor.

And what about furnishing?

You used a furnished flat to gain the rental amount used did you not?

Graham_Devon

julieq wrote: »

Graham, what about average yield? Bearing in mind rents go up exponentially over time? How does that affect YOUR calculations?

I would say that 8% over 10 years is massively on the low side.

And as to whether rents can and will go up, tell me what is happening to rents at the moment? House prices stagnant or decreasing, rentals going which way exactly? Oh yes, up. And why? Because there are too few houses for people who want homes. THAT is why BTL is fundamentally a strong proposition.

What else is going up at the same time as rental prices?

Arrears maybe!?

But of course, that won't effect your perfect bubble either!

HAMISH_MCTAVISH

Graham_Devon wrote: »

And what about furnishing?

You used a furnished flat to gain the rental amount used did you not?

Plenty of those for sale. Buy one.

julieq

Graham. what in the name of God are you talking about?

Rates of arrears are low and easy enough to price in on a risk basis. Stop muddling the argument by introducing irrelevant new points.

Rental will certainly go up exponentially unless you increase supply. And that will increase the yield over time given that the capital outlay is fixed. Yield increases over time.

And which way are rents going again?