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Is BTL now the best retirement investment?
Comments
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I have to say those yields do not look stunning to me for the risk/work involved.
I can get tax free, completely safe, work free savings from NSI at RPI + 0.25%.
I would be relatively confident of getting more from a Stocks & shares portfolio, tax free in ISAs.
Yes there are some risks involved in that but it can be spread amongst many funds/shares as opposed to one or two tennants.
Sorry if this is a dumb question but is this on top of a repayment mortgage? i.e. you get a house at the end of it?
If so then it's a different story.
Those are gross yields, but they're more than enough to pay a repayment mortgage even after tax, voids and maintenance.
So, for example, on the 80K flat, you're getting a yield of 8.1%, or £525 a month.
The breakdown would then be as follows.
£20,000 deposit. (25% to get a decent rate)
£60,000 mortgage and we'll assume 5% average over 20 years.
Monthly repayment mortgage £355, interest-only component £250.
Allowing for one month void and £500 maintenance per year on average....
Income -
11 x £525 = £5775 per year
Outgoings -
12 x £355 = £4260 per year
Maintenance = £500 per year
Tax on income = approx £500 (depends on rate, status, individual or ltd company, etc)
Total = £5260 per year.
Net profit after expenses, and before taking into account the fact that someone else is buying you a house = £415 the first year, and of course that will increase as rents increase with inflation.But otherwise I could get those sort of yields elsewhere with a lot less hassle (plus 40% tax relief if I'm prepared to tie it up in a pension wrapper).
Lets say two people start out with £20,000.
Person A invests in a flat in the example above.
Person B invests in something else.
I'd struggle to think of anything else that will give you returns of £80,000 or so in real terms from a 20K stake with no further investment.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »
Net profit after expenses, and before taking into account the fact that someone else is buying you a house = £415 the first year, and of course that will increase as rents increase with inflation.
Wow!!
Northen Rock 3% ESaver issue 5.
£20,000 deposit.
£608 gross. £486 net.
Savngs account wins.
And compounded interest does the same as rents increasing, without your maintanance increasing each yer (you forgot that aspect of inflation!).
And thats a simple, no risk at all, access your money whenever you like, savings account!!!
No legal fees, no solicitors fees (which you failed to mention) no mortgage fees (which you failed to mention) no hassle.0 -
Graham_Devon wrote: »Wow!!
Northen Rock 3% ESaver issue 5.
£20,000 deposit.
£608 gross. £486 net.
Savngs account wins.
I think you're missing something rather important....
Last time I checked, Northern Rock don't give you a free house at the end of every 25 year savings account.;)“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
According to rightmove there are no 1 bed flats for sale in Aberdeen and only 3 in the whole of Aberdeenshire.
Seems that amost of the properties available in Aberdeenshire are castles. I'm not sure that the buy to let castle business is really that buoyant at the moment.
What's up with that, do you not use rightmove in Scotland?0 -
HAMISH_MCTAVISH wrote: »I think you're missing something rather important....
Last time I checked, Northern Rock don't give you a free house at the end of every 25 year savings account.;)
It's not a free house Hamish.
I didn't miss that fact. And I'm not denying the fact that the house should be paid off if everything goes swimingly for 25 years. However, the little inconvinience of a slight interest rate rise turns your "free house" scenario into a "not free house" very very quickly. You only have £415 to play with a year. Interest rates rising to just 2.5% could undo that £415, unless you are using a 25 year fixed rate mortgage.
You can't get access to the cash easily. You are at the mercy of any government / BOE changes throughout the period. You may end up paying more than expected each month just to keep the asset going, serving a loss, which you are unable to bail out of without losing.
And your £500 per year maintanance is incredibly small. After 25 years, it will have needed a new boiler, new windows, gas checks etc, possible new central heating. You have only allowed for £12,500 maintanance over 25 years. Thats insane. Windows and the boiler would take a large chunk of that, without carpets and redecoration (at minimum).
What people are saying is, thats a lot of risk for a small reward. And that's based on a way above average 8.1% yield.
It's not the "no brainer" it was made out to be. It's not what it was made out to be in the OP either.
It HAS been a VERY good decade / 15 years for BTL's. However, entering now is a completely different ballgame. It would be prudent not to mix up past performance with future performance and just blindly assume the same will happen again. You won't acknowlegde any possible legal fees (but acknowledge on another thread in the house buying forum that tenants can be evil and have described them as so....ut in your scenario they will be brilliant). You won't acknowledge solicitors fees, mortgage fees, capital gains, professional fees.
Therefore I can only conclude you are only going as far as what happened in the past, and telling yourself there is no doubt it will happen in the future.0 -
chewmylegoff wrote: »According to rightmove there are no 1 bed flats for sale in Aberdeen and only 3 in the whole of Aberdeenshire.
Seems that amost of the properties available in Aberdeenshire are castles. I'm not sure that the buy to let castle business is really that buoyant at the moment.
What's up with that, do you not use rightmove in Scotland?
Correct.
We don't use Rightmove in Scotland.
1 bedroom flat for sale - £85K.
http://www-x.aspc.co.uk/cgi-bin/public/LiveProperty/286023?ID=FMADPLFB#picture
1 bedroom flat on same street for rent - £595
http://www-x.aspc.co.uk/cgi-bin/public/LiveProperty/288906?ID=FMADPLFB#picture
I may have been a bit overcautious with my rental yield estimates....
“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
Why is a rental property under offer?
Whats under offer? The rent?0 -
Graham_Devon wrote: »It's not a free house Hamish.
I didn't miss that fact.
Well you did, if you think the "savings account wins!!!"...And I'm not denying the fact that the house should be paid off if everything goes swimingly for 25 years. However, the little inconvinience of a slight interest rate rise turns your "free house" scenario into a "not free house" very very quickly. You only have £415 to play with a year. Interest rates rising to just 2.5% could undo that £415, unless you are using a 25 year fixed rate mortgage.
I used a 5% mortgage.
Which is a very fair average.And your £500 per year maintanance is incredibly small. After 25 years, it will have needed a new boiler, new windows, gas checks etc, possible new central heating. You have only allowed for £12,500 maintanance over 25 years. Thats insane. Windows and the boiler would take a large chunk of that, without carpets and redecoration (at minimum).
It's a one bedroom flat..... As someone that's owned houses for over two decades, I can assure you that's generous.What people are saying is, thats a lot of risk for a small reward. And that's based on a way above average 8.1% yield.
It's not the "no brainer" it was made out to be. It's not what it was made out to be in the OP either.
It HAS been a VERY good decade / 15 years for BTL's. However, entering now is a completely different ballgame. It would be prudent not to mix up past performance with future performance and just blindly assume the same will happen again.
I'm not blindly assuming anything. I've done more research on this subject than just about anyone, and all the fundamentals are telling me only one thing.
The boom of the next two decades is going to be far bigger than the last one.
That's baked in already.(but acknowledge on another thread in the house buying forum that tenants can be evil).
No, I said they can be scumbags.You won't acknowledge solicitors fees, mortgage fees, stamp duty, professional fees.
.
No stamp duty on an 80K flat. Solicitors fees are a grand or so. No survey fees as it's Scotland, so already in the homebuyers report, paid for by vendor.
Like I said Graham, show me one investment that comes close with an initial investment of 20K that is then self sustaining over the 25 year term on average.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
Graham_Devon wrote: »Why is a rental property under offer?
Whats under offer? The rent?
It's the Scottish equivalent of "under contract".
So in progress..... Deal done, but not yet finalised.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »
I used a 5% mortgage.
I stopped reading at that point. Sorry.
Fair average!? It's the absolute lowest on moneyfacts when comparing BTL mortgages at 80% today.
Fair average, my rear.0
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