Is BTL now the best retirement investment?

Graham_Devon

HAMISH_MCTAVISH wrote: »

Plenty of those for sale. Buy one.

What?

Your calculations were based on the price of a furnished flat. You have yet to include furnishings in your calculations.

Unless you are assuming that you, just you, will get the same price as a furnished flat, on an unfurnished, hardly maintained (by your figures) hole.

HAMISH_MCTAVISH

Graham, I'm quite happy to provide a fully worked example for the above mentioned flat over 25 years, if we can agree on the following parameters.

1. Tax
2. Insurance
3. Maintenance (all in)
4. HPI
5. Rent inflation
6. Average length of voids.
7. Average mortgage rate.
8 furnishings

Graham_Devon

julieq wrote: »

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?

So arrears are now irrelevant, and landlords can just put prices up if things get sticky.

Brilliant. I'm sold. Not on the rental....but on that bubble you appear to live in.

julieq

Graham, landlords ARE putting their prices up, and arrears are uncommon and do not affect profibility of letting (or no-one would do it). You're doing your usual thing of not understand the relative significance of particular numbers.

You're not very financially astute. It's really unsurprising you don't get this. Just agree on Hamish's numbers please so he can work the example for you, and we'll see where that leaves the argument.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Graham, I'm quite happy to provide a fully worked example for the above mentioned flat over 25 years, if we can agree on the following parameters.

1. Tax
2. Insurance
3. Maintenance (all in)
4. HPI
5. Rent inflation
6. Average length of voids.
7. Average mortgage rate.

Nah your ok. I agree with you on the final outcome. It will be profitable. What I, and others are saying, is it's a large risk, whereby you tie your money in for a long time. Maybe now, isn't the best time to suggest is as someones pension, as the OP suggested. I also took issue with your "its a free house" claptrap.

Keep the house for 25 years with nothing going wrong, great, it will probably work out handsomely. Keep the house for 40 years, and it will turn out to be a VERY good pension. Maybe.

Could say the same for so many shares. Some, just bite you on the rear. Some, propel you further than you ever imagined.

When it boils down to it, a lot of it is to do with luck, and parameters way outside of your control. BTL would not have been the great investment its now hailed as if base rates had not fallen to record lows. However, as luck would have it, they have.

BTL wouldn't have been the fantastic investment with changes to capital gains. We could all see landlords looking to pile out early for fear or capital gains rising when it was talked about a couple of years ago in parliament.

Piling a load (to me) of money into Herencia Resources looked not to be the best investment choice a couple of weeks ago. However, now, as luck would have it, the results are good and they have just stumbled upon a load of resources they didn't know they had. Next week, it could end up looking like a real bad investment.

As with everything, a good bit of luck, some foresight, but mostly parameters outside of your control, define the end product. It's all gambling.

People, in general, don't wish to take that gamble with their pensions. As I said from the outset...a BTL alongside a decent pension, great. But as your only pension, and it being a "no brainer"....even financial advisors are here stating it's probably not the best bet and could wipe you out....not only pension wise, but with your tangible assets today.

julieq

How is something you have just agreed to be profitable a risk?

Risk of ruin is very high with shares, and there is no such thing as luck. Risk management works on probabilities, impact assessment, and mitigating factors that can be applied.

It's perfectly possible to make serious money gambling if you understand that. William Hill does.

Graham_Devon

julieq wrote: »

How is something you have just agreed to be profitable a risk?

Risk of ruin is very high with shares, and there is no such thing as luck. Risk management works on probabilities, impact assessment, and mitigating factors that can be applied.

It's perfectly possible to make serious money gambling if you understand that. William Hill does.

Oh good lord Julie. We've had arrears are irrelevant (when talking about rising rents)....you can just raise your prices to up your income....and now....there is no such thing as luck.

Of course theres such thing as luck. I can't even believe I'm responding to such an absurd post seriously.

There are many many factors outside of your control in any investing. If things fall into place for you, outside of your control, outside of anything you could research and plan for, and make you better off as a result....thats luck.

Good grief.

robmatic

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.

Hardly. Long term average real return for UK equities is 5% p.a., more in the US.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Nah your ok. I agree with you on the final outcome. It will be profitable. .

Glad you agree.

But I was curious, so I did it anyway from the two flats I posted earlier, and using a 6% mortgage rate to keep you happy.

Purchase Price = £85000

Interest = 6.0%
Deposit = 25%
Term of Loan = 25 years
Monthly Rent = £575
Rent Rate Increase = 3%
Expected House Price Inflation = 3%

Mortgage Info
Deposit: £21,250.00
Mortgage amount after deposit: £63,750.00
Monthly Payment: £410.74 (Capital and Interest)

Total spent on mortgage payments = £123,222.64 .
This includes Capital & Interest.

£59,472.64 in total interest over the 25 years.

Using a 3% average house inflation rate over 25 years, the house will increase in value to £177,971.12.

Rental Info
£575.00 for the first year.

An average of 3% yearly increase.

You'd collect £259,068.92, before voids, over 25 years.

Assume voids of one month in 10 to make it easy to calculate, and that's a deduction of £25,906, so an actual return of £233,154.

Results:
Flat cost you £144,472 to buy including deposit, capital and interest.

You took £233,154 in rent.

Profit so far £88,682. PLUS you now own a house worth £177,971

You can be as pessimistic as you like, Graham, but I'd struggle to spend 88 grand on landlords insurance, furniture, maintenance, and decorations for a 1 bed flat in 25 years.

robmatic

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

Come on now, I think what you meant was that the current best buy is 3.79% with a hefty 40% deposit and a hefty 3% arrangement fee (unless you mean that BM Solutions product which is remortgage only).