Is BTL now the best retirement investment?

HAMISH_MCTAVISH

robmatic wrote: »

The rental market in the 'Deen is a bit untypical though because of the oil industry.

A gross yield of 5% doesn't seem that tempting a proposition when you knock off the letting agent's fees and the cost of servicing the mortgage.

Just had a quick look at BTL mortgage rates and jeez, they are not cheap. 5% APR when gross rental yields are 5%?

True, housing is stronger here than in many areas, but it's also not that unusual. Many student towns, for example, also have good yields.

Here's an excerpt from a recent article on the topic.

A new survey has lifted the lid on the best locations in the UK when it comes to property investment.

Research carried out by property website Home.co.uk found that a two-bed property in Bootle, Merseyside, will deliver the best return for buy-to-let investors.

The typical asking price for such a property is £70,000 and landlords can expect to receive an average rental income of £450pcm. This equates to an annual rental yield of 7.7 per cent.

Hamilton, south of Glasgow, came second in the table with an average, annual gross rental yield for a two-bed property of 7.4 per cent.

"These top gross rental yields are highly attractive to buy-to-let investors.

They more than cover typical mortgage interest payments and other expenses, and offer a good potential return on capital."

http://www.co-operative.coop/magazine/in-the-news/house-home/survey-reveals-best-buy-to-let-locations/?articleid=001474#Comment

Those are averages of course, but you can certainly find plenty of properties in plenty of areas yielding between 6% and 8%, and it's possible to get closer to 10% if you're willing to do student lets by the room.

abaxas

robmatic wrote: »

Why would a letting agent not fulfil their professional obligations?

Because the LL (who is urinating himself) cannot fulfil their responsibilities.

HAMISH_MCTAVISH

antrobus wrote: »

Oh it's perfectly possible to make a loss on BTL.

No, it's really not.

Or at least, not over the full 25 year term of a mortgage because you still have someone else buying you a house, or the vast majority of a house even if you do have to put in some cash to cover ongoing expenses beyond what the rent covers.

The worst case scenario is you end up paying for 10% or 20% of a house, and someone else buys you the rest.

I don't doubt it's possible to be upside down for a few years at some point in the short term however, hence my comments about cashflow.

But over the 25 years of a mortgage, I'd say it's virtually impossible to make a loss on BTL in the UK.

lisyloo

When was the last time your pension pot went up 25% in one year. It's a no brainer.

What???
Equities have been outperforming propery for quite a few years recently.

lisyloo

I disagree with the time/effort as you can just pay someone else to take care of that

Do you still make a profit when you do that?
I've done research before and even with 100% paying tenants (parents) it did not look particularly attractive.
I guess it depends on how conservative some of your estimate are, but I did do it properly e.g. allow for repairs, decoration, agents fees etc.

I don't think this is the no-brainer that some people are claiming it to be.
If you don't agree then let's see some figures so we can discuss it.

My feeling is that people who say it's a no-brainer are taking a risk somewhere or not allowing for all the costs.
But we can't argue that properly without the figures.
I'm not doing BTL currently, so would be better supplied by someone doing it or propsing it.

[Deleted User]

lisyloo wrote: »

Do you still make a profit when you do that?
I've done research before and even with 100% paying tenants (parents) it did not look particularly attractive.
I guess it depends on how conservative some of your estimate are, but I did do it properly e.g. allow for repairs, decoration, agents fees etc.

I don't think this is the no-brainer that some people are claiming it to be.
If you don't agree then let's see some figures so we can discuss it.

My feeling is that people who say it's a no-brainer are taking a risk somewhere or not allowing for all the costs.
But we can't argue that properly without the figures.
I'm not doing BTL currently, so would be better supplied by someone doing it or propsing it.

Is this another wind up? Why would you need management when its your own parents renting it?

If your being serious show us your numbers.

When I last bought on a BTL mortgage one of the criteria was that the monthly rent should be 125-150% (depending upon the lender) of the monthly mortgage payment. Depending upon the area your looking in full management and finding a tenant is usually advertised around 12% usually they will do it for 9% or less. So if you can meet the low end of the rental return of 125% its hard to see how you would lose even in the early years. At the moment voids are not much of a worry. As you steadily pay off the mortgage, or rather you tenants do, things get even better overtime.

Engeroosi

Think everyone is more concerning this discussion with the mortgage period, nobody is looking at profits made at the end of the mortgage period when you could sell the property for cash, pay CGT and pocket the rest for retirement if you are in the position the LL urinating himself in a home. Or you could pocket the rent every month to supplement your lifestyle, Obv minus the tax. Take this profits into accounts and you cannot lose.

But as always you need the money to fund the early times in the mortgage period and also cover any voids in the rental income.

MONEY BREEDS MONEY!!!

chewmylegoff

Blacklight wrote: »

When was the last time your pension pot went up 25% in one year. It's a no brainer.

Errr....2009

lisyloo

Is this another wind up?

Absolutely not. I'm a serious MSE poster with thousands of posts.
I've done some research on BTL in the past and it's not looked good (in my area of course for a higher rate tax payer).
Currently we have massive public sector cuts coming up and house prices have been falling (in both nominal and real terms).
I am not confident of the prospects for house price so prospects for the capital side look risky to me (which is of course different from the income side of BTL).

Why would you need management when its your own parents renting it?

I was speakinging generally.
For that particular example I would not need letting agents, but I would need proper valuations etc. to show that it was done "at arms length" and was not a "deliberate deprivation of assets" for the purposes of avoiding care homes fees.
So whilst agents fees are not included in this case, there has to be a proper paper trail to show it's all above board.
In most cases you would need to include letting agents fees.

If your being serious show us your numbers.

Sorry I didn't keep them when I decided not to go ahead.

The idea of having someone's numbers to look at is not a point scoring contest.
It's about an exchange of ideas/information.
Perhaps there are things I'm overlooking, perhaps my assumptions are too conservative, perhaps there are things other have forgotten, perhaps there are points that all of us could learn.
It's not about being wrong/right (not as far as I'm concerned anyway).
I would love to be completely wrong and learn something new, unfortuantely a lot of these thread do deteriorate into name calling contents.
So I think it would be great to discuss some specific numbers, but I'm afraid I don't personally have it to hand as I've not looked into it recently, hence why I asked if someone more knowledgeable could supply.

So if you can meet the low end of the rental return of 125%

I think that's the crux of it.
Can you meet the basic criteria in your area.
I think that's been difficult in recent years in my area, but I'll see if I can put some numbers on that.
I presume you are talking repayment mortgage as you mention it being paid off.

nobody is looking at profits made at the end of the mortgage period when you could sell the property for cash

Great, but you are assuming the rent covers a repayment mortgage plus all the other costs (insurance, repairs, agents fees etc. etc.).
If you meet the basic premise then I agree it works, but it's meeting that in the first place that might be a problem in some areas.

lisyloo

ok, here's some figures just as a starting point for discussion.
3 bed family home, North Cepen Park, Chippenham Wiltshire.
Cost to buy £250K
Rent £750 pcm.

I took a mortgage rate of 3.49% which I think is a very low rate and it's quite possible that would rise in future (I am not deliberately trying to make a biased example).
This does not meet the 125% of a repayment mortgage.

Rent £9000
Mortage £8725 (yes I know there is no deposit).

I would not personally want to run a businesse with £275 per annum to pay for all maintenance, insurance, repairs, fees and that assumes 100% oocupancy and a very low mortgage rate. This is also INTEREST ONLY.

I realise there will be issues with this example, but it's a least a starting point in the absence of any other figures.