Buy To Let - General Advice

fellakel

I have read the thread and really want to give a clear picture of BTL;The pros and the many cons. I have been in BTL for about eight years and have a relatively small portfolio. The first seven years was fantastic - loads of growth, perfect tenants and no problems - until this year.

1. 1 tenant does a runner owing £1000 rent
2. another tenant does a runner owing £500 rent
3. Another i had to take to court to recover rent and costs to evict her - this cost me £2500 - i have only received half that back and am still pursuing her 10months on.
4. A boiler went - replaced at a cost of £1000

In the main, rent (if you're lucky) will just cover rent and basic costs e.g. insurance and a lick of paint, but nothing else. The days of basic houses for prime rent are over (sadly); these days your property has to be modern, clean and looking the best all the time for a very basic rent - WHY? because unlike when i started 8 years ago, everyone is now on the BTL gravy train and all these people are your competition.

So the cons are when it hurts, it really hurts - i havent even mentioned mortgage rate rises and the potential for a crash.

HOWEVER,

Pros
Unless you strike lucky with shares, the lottery, pools, etc, you will never have the potential to make your money grow the way BTL does.
You absolutely must be in it for the long term - 10years +, so if there is a crash you will be able to ride it out.
It is a tough game and during that 10years will cost you many £££s to cover voids, stick a new boiler in, repairs, etc, etc. but if you buy in the right area and run your BTL as a business, then you should come out in the end with a tidy profit.

Summary

It is a rough ride, but if you are prepared and have thrown away any rose tinted specs you may have, then go for it!!

dunstonh

The other thing to consider is inflation. If you go back 25 years, a lot of the property price growth is due to inflation at rates much higher than we have today. The recent peak is not due to inflation but undersupply of property.

It is predicted that the population of the UK will peak in around 20 years time and then start declining. Although that report didnt take into account immigration. I read a very good piece a few weeks back that suggested that the future of the UK could be very different with increasing numbers of wealthy households leaving the UK to take up residence in other parts of Europe to capitalise on lower property prices and better living standards. In return, the UK will suffer increased immigration of cheap labour. The upshot was that there could be price deflation in a number of areas in the future and benefits etc would be reduced due to the lower amount of tax being paid. Increases in tax to cover that would further push more abroad.

Of course, these sorts of articles are very much like "tomorrows world" or other how the future is going to be films to be (ie. 1950s films saying we would have flying cars by the year 2000). However, some of things do occur and it does make you think.

30 years ago, this country was nearly bankrupt and had just come from the brink of being the first developed country to be reclassified as a developing country. 30 years before that, WWII had just finished. Do you want to tie yourself into an investment that needs 25/30 years to make money based on how the world is today.

The retail investment world has learned from that with endowments where as little as 10 years ago, no endowment had failed to pay a large surplus and everyone was saying that you should get one (including Which?). When the economy changed from boom/bust and Govt altered the taxation and the FSA increased solvency requirements making endowments less attractive these long term contracts were not flexible enough to cope with that change. Pensions are beginning to see that too with 1988-1995 contracts appearing to be very good options but with the Govt changing the rules over the years they are less attractive than they once were. Now the best way to invest is utilise unit trusts/OEICs which are flexible, open ended and can be changed at a drop a hat and be used within ISAs and other tax wrappers as well as held directly.

With property where you require a long period to make that profit, what would happen if the Govt decides to increase the taxation on second and subsequent properties? What will happen to property prices if a dirty bomb goes off in a city? What if price deflation does occur? What if mass migration occurs?

I'm not trying to put you off as there are certainly areas of potential still available. I just want you to realise that it isnt dead cert profit and long term investing where there is limited or no short term gain carries a range of risks as well.

Pros
Unless you strike lucky with shares, the lottery, pools, etc, you will never have the potential to make your money grow the way BTL does.

Just a point on that. You dont have to strike it lucky with shares. If you invested at the worst point before the stockmarket crash in 2001/2 you would be up over 62% now if you had only got sector average return. I have manged to double my money in that period but my property value has only increased by 30% (most of the property price gains in our area were 98 to 2002).

You invested after the property crash. Those that invested in the stockmarket after the stockmarket crash doubled their money in 3 years. The two things are very similar in that both go up and both go down at different points. Usually out of sync with each other.

itsakidsworld

Dunstonh,

An excellent reply to this topic. What your reply has done is confirm to anyone who wishes ( and should) invest their hard earned cash that it alll comes with various pitfalls.

You have to calculate which sector you prefer to be in and then concentrate on your choice for a period. After which you can re-assess what you have, the lessons you have learnt and what you can do for the next period of your investment life.

Nobody can predict anything, people can only talk of past experience and hopefully guide others towards which path they choose to take.

We all live in a changing world and we have to adapt as we see fit. For myself, property investing was a great choice but I started in 1982. We are now 24 years on and times have changed so maybe I should as well!!

A good point made and to be honest it is one which I have overlooked. Property prices and wages have to be comparible for them both to work. So now prices in property are high, yet wages have not caught up yet? I always said that property stops rising and wages catch up, then just when wages reach a level where property is affordable, property prices start going up again. However, when you look at all the countries joining the EU and us, they do this for the work on LOWER wages than we are on now. So actually, we could go slightly backwards? Just a thought.

jamesd

dunstonh wrote:

The two things [property and the stock market] are very similar in that both go up and both go down at different points. Usually out of sync with each other.

And there you have suggested an excellent reason to have some residential property as part of your overall long-term investment mix. As part of being the key portion of that sentence.

Personally, I made an offer for two flats, one to live in, one to let, a week ago. But that's only part of the picture. It's being combined with 7000 a year in ISA investing and pension and a full-time job.

A_Nice_Englishman

I agree with jamesd that you should have a mix of investments. At the moment I have about 55% in residential property, 27% in my public-sector pension, 10% in cash and 8% in equities and no borrowings having fairly recently paid off my mortgage. I will probably be putting more into equities over the next few years to achieve a more balanced portfolio.

What alarms me is those who, already owing many tens of thousand of pounds to their mortgage lenders and having little or nothing in pensions, cash or equities, think that borrowing even more to buy a property to let out is a good idea.