Financial Transaction Tax - Does it make property more attractive to investors?

Generali

Thrugelmir wrote: »

Property over a 10 year period has already fallen back. The market peaked 5 years ago and hasn't finished falling back in real terms yet.

I agree but that isn't all of the story. Rents overall are rising, albeit by less than inflation and for BTLers with mortgages it is likely that mortgage servicing costs have fallen too.

I'm not diaagreeing with so much as saying that for BTL things are more complex than house prices up = good & down = bad. In a similar way, it's not necessarily good for Tesco if food prices rise or bad if they fall.

RenovationMan

Generali wrote: »

I agree but that isn't all of the story. Rents overall are rising, albeit by less than inflation and for BTLers with mortgages it is likely that mortgage servicing costs have fallen too.

I'm not diaagreeing with so much as saying that for BTL things are more complex than house prices up = good & down = bad. In a similar way, it's not necessarily good for Tesco if food prices rise or bad if they fall.

I don't understand why so many people are hung up over HPI when discussing BTL. If the plan were to buy houses, develop them and sell them on then you're relying on HPI for the profit. With BTL, and certainly the model I'm considering, it's all about rental income. If you sell the propertie then it undermines what we are trying to do - receive a regular monthly income in retirement that does not rely on stockmarket gains or annuities.

As MiserlyMartin has pointed out, the decision to invest is not down to HPI but instead down to yields, though sadly he hasn't provided details why he thinks the yields aren't there. It would be interesting to see the calculations because I don't see how yields can be determined across every property in an entire country to say with any accuracy that 'yields aren't there'.

DervProf

RenovationMan wrote: »

Jeeze Derv, you seem to have been desperate for a rumble since I started this thread. You hardly post on the board and yet when I start a thread and suddenly every second post is from you. What's your problem? Not getting enough attention or something?

No, I'm just enjoying a bit of reasoned discussion/debate with you and a few others on this subject. I have said before that I am not here to just "rumble" with you. Yes, there are certain things about you that I strongly disagree with (and I'm sure share the same view about me), but not for the first time I am trying to have a "conversation" with you without getting into an argument.

RenovationMan

DervProf wrote: »

No, I'm just enjoying a bit of reasoned discussion/debate with you and a few others on this subject. I have said before that I am not here to just "rumble" with you. Yes, there are certain things about you that I strongly disagree with (and I'm sure share the same view about me), but not for the first time I am trying to have a "conversation" with you without getting into an argument.

Perhaps if you stopped posting all that "thanks" crap then I'd be able to take you serious enough to debate with you?

Generali

RenovationMan wrote: »

I don't understand why so many people are hung up over HPI when discussing BTL. If the plan were to buy houses, develop them and sell them on then you're relying on HPI for the profit. With BTL, and certainly the model I'm considering, it's all about rental income. If you sell the propertie then it undermines what we are trying to do - receive a regular monthly income in retirement that does not rely on stockmarket gains or annuities.

Because a lot of people seem to get into BTL for an easy capital gain. That may just be perception of course.

The latest Berkshire Hathaway newsletter has a great bit on why Mr Buffet feels that it is better for him if stock prices are falling rather than rising.

shortchanged_2

RenovationMan wrote: »

I don't understand why so many people are hung up over HPI when discussing BTL. If the plan were to buy houses, develop them and sell them on then you're relying on HPI for the profit. With BTL, and certainly the model I'm considering, it's all about rental income. If you sell the propertie then it undermines what we are trying to do - receive a regular monthly income in retirement that does not rely on stockmarket gains or annuities.

As MiserlyMartin has pointed out, the decision to invest is not down to HPI but instead down to yields, though sadly he hasn't provided details why he thinks the yields aren't there. It would be interesting to see the calculations because I don't see how yields can be determined across every property in an entire country to say with any accuracy that 'yields aren't there'.

I see what you are saying RenoMan but I still think that some form of HPI is important to a BTL model unless I suppose what you are planning is that you actually hold onto these houses until you die.

What I am not convinced about with BTL at the moment RenoMan is the same issues that MiserlyMartin has in that the yields aren't there if you get into the business now. I have a horrible feeling that the BTL market is in a bit of a bubble at the moment in that rental prices are unsustainably high considering many people are facing a squeeze on incomes.
I think there is a common misconception amongst many BTL LL's that rents can just go up and up, the same way in which house prices just went up and up. This is just building up a major potential problem particularly when there doesn't appear to be any significant signs of growth in the UK economy.

nearlynew

Before house prices started falling, most recent BTL landlords had not even heard of yield never mind how to calculate it.
While HPI was rampant, it was all about capital grpwth.

Yield was only "discovered" when prices stopped rising and was then used as a way of justifying poor decisions and soothing the pain.

RenovationMan

shortchanged wrote: »

I see what you are saying RenoMan but I still think that some form of HPI is important to a BTL model unless I suppose what you are planning is that you actually hold onto these houses until you die.

That is exactly the plan, with the properties then passed onto spouse/children for them to continue to manage and profit from. I'm sorry if I've somehow been ambiguous in my posts, but I feel I've made it quite clear that the whole point of this model would be to provide retirement income without the reliance on stockmarket returns or an annuity. The only way to do that is to keep renting the properties until death, in a similar way that people invest a lump sum in an annuity that pays out a monthly amount until death.

The difference is that whereas an annuity pretty much dies with the annuity holder (and the lump sum invested is then lost), the BTLs are passed on in their entirety, subject to IHT.

shortchanged_2

RenovationMan wrote: »

That is exactly the plan, with the properties then passed onto spouse/children for them to continue to manage and profit from. I'm sorry if I've somehow been ambiguous in my posts, but I feel I've made it quite clear that the whole point of this model would be to provide retirement income without the reliance on stockmarket returns or an annuity. The only way to do that is to keep renting the properties until death, in a similar way that people invest a lump sum in an annuity that pays out a monthly amount until death.

The difference is that whereas an annuity pretty much dies with the annuity holder (and the lump sum invested is then lost), the BTLs are passed on in their entirety, subject to IHT.

But what I'm saying RenoMan is that I'm not convinced that going into the BTL market now is really all that great in that I'm really not convinced it will provide great returns.

Interest rates are basically as low as they are ever going to be at the moment so in essence if you have BTL mortgage on IO and don't pay off any of the capital then the only likely scenario is that your income is going to decrease over time because I am not convinced that rents can keep going up and up, particularly if the market becomes saturated with rental properties.

This is worth a look http://www.rightmove.co.uk/resources/property-guides/letting-guide/rental-income-and-capital-growth.html

I think I have read somewhere that average UK net rental yields are around 5%. However bearing this in mind this figure may be skewed by the fact that many people who got into BTL years ago will likely be obtaining a healthy yield.
It would be interesting to see what yields people who got into BTL since 2006 are achieving, although you would expect them to be alright at the moment with interest rates being so low.

Thrugelmir

RenovationMan wrote: »

As MiserlyMartin has pointed out, the decision to invest is not down to HPI but instead down to yields, though sadly he hasn't provided details why he thinks the yields aren't there.

Because they need to be around 10% gross as a base starting point.

Over the years I've become accustomed to the fact that many people don't prepare a business plan.

If you intend holding a BTL for 20 years it needs to be fully costed out. Interest, maintenance, scenarios for void periods etc along with buying/selling costs and of course tax. Income and capital gains.

The return may not be great as one imagines.