Is it still possible to make a profit on BTL???

Generali

RabbitMad wrote: »

1. I 've read somewhere that houses have over the long term increase at AEI + 3% (3% faster than wages go up). For my LTB I wanted 2% capital increase each year plus the rent to cover a REPAYMENT mortgage. I've got that (just with the last 3 interest rate rises and the LA fees.) While this continues I'll be happy.

2. When I rented 6 years ago I was paying similar to rents that are being charged at the moment (in my area) and that amount was more than I paid on my 1st mortgage (when interest rates were at the heady heights of 6%). When I came to let my LA suggested we stick £30 on the monthly rent that similar properties were being marketed at. Our was snapped up on the 1st day. I think house prices have levelled off (in my area) and with the rise in interest rates and house prices I think many Private landlords will be profit taking (reducing the number of rental properties) or putting the rent up to cover these extra costs.

One thing I have noticed on here is nearly everybody seems to expect BTLs to be on a 75 to 80% mortgage. I think if your BTLing with this sort of mortgage your in very serious danger of coming a cropper.

I know of a case where one guy had 10 BTLs but his outgoings (excluding voids) was £500 a month more than his income. When he has to sell he'll have to sell cheap and some FTBs will get their own home.

I've calculated a return over 20 years of RPI+4% approx:

Year......20 Year Return
1983-2003....3.40%
1984-2004....4.19%
1985-2005....4.16%
1986-2006....4.19%

Rather less than AEI+1.2% as wages normally increase by about RPI+3%.

Total real returns over 7 years from the start date on the left:

1983.........52.96%
1984.........40.89%
1985.........23.67%
1986.........12.33%
1987.........-0.50%
1988.........-18.00%
1989.........-31.20%
1990.........-21.93%
1991.........-14.59%
1992.........-3.62%
1993.........10.25%
1994.........17.64%
1995.........41.27%
1996.........70.17%
1997.........93.17%
1998.........94.73%

If you invest in shares you can expect a total return of RPI+3%, typically.

You'd have made more than that in 7 of the periods above.

mystic_trev

Excellent research Generali - have a rec!

Generali

mystic_trev wrote: »

Excellent research Generali - have a rec!

All my own work due to some very lazy days working at Big Bank. Taken from the Halifax numbers. May bear a similarity to numbers on a website for fools...

lynzpower

I have been a real doomonger on this previously ( rake through previous posts to see!) but Im actually really surprised, as at work have sold a number of properties in london which would realise a 9%+ yeild.

In saying that they are usually in high rises, or low rise of concrete construction, in shocking state of repair, needing the lot doing, bathrooms, all F&F and some serious serious cleaning.

Norroy

Generali wrote: »

It's dated August 2004! If investors were having trouble getting BTL numbers to add up then, with several interest rate rises since then as well as house prices rising things must be impossible now. Or are house prices not really rising in most areas? That's a claim I've heard.

In August 2004 90%LTV and 100% rental cover on BTL mortgages were virtually unheard of.

Also self -cert products have become increasingly less onerous, and BTL rates have come even closer to those on 'normal' mortgages.

As BTL becomes ever more important to lenders I can foresee a time when they will take buyers opinion of likely rent levels and not do there own assessmentment. These places are under huge pressure to increase/not lose market share, they need to be inventive.

Yes Genarali I know, for the Economic Historians among us these are slightly worrying trends.

Generali

Norroy wrote: »

In August 2004 90%LTV and 100% rental cover on BTL mortgages were virtually unheard of.

Also self -cert products have become increasingly less onerous, and BTL rates have come even closer to those on 'normal' mortgages.

As BTL becomes ever more important to lenders I can foresee a time when they will take buyers opinion of likely rent levels and not do there own assessmentment. These places are under huge pressure to increase/not lose market share, they need to be inventive.

Yes Genarali I know, for the Economic Historians among us these are slightly worrying trends.

It seems amazing that on what is a £300k flat today, far from unusual in London, someone in a few years will be prepared to subsidise their tenants at a rate of £1000 a month.

Perhaps you're right though. JM Keynes said "...markets can stay irrational longer than you or I can stay solvent". For example, Tulip bulb prices dropped by 99.9987% in 6 weeks. Between 1929 and 1932, the Dow Jones Industrial Average fell 85%.

Why not destroy your finances by bidding dreadful back-to-backs in towns where the best available job is running the discounts fags and booze emporium to hundreds of thousands of pounds? You can't take it with you after all!

Uncle_Fester_2

Rental:- Probably Not

Capital Gain:- Yes

*Based on 85% LTV & Long term investment*

Massive_2

Without being unkind, there are of course an enormous number of novice investors in this business, and this can give the impression that success is a rare phenomenon.

Indeed, statistically it is, but if you are careful, intelligent, and motivated, there's no reason why significant profits can't be made considering both rental return and capital growth.

But you can't just look for average performance - you have to do something special, or you'll be disappointed at best.

EdInvestor

Generali wrote: »

If you invest in shares you can expect a total return of RPI+3%, typically.You'd have made more than that in 7 of the periods above.

Long term returns on shares are made up of:

1.Dividends (the market yield is typically 3% in the UK)
2.Capital growth, roughly similar to GDP growth (2.5-3% in recent years)
3.Inflation (typically 2.5-3.5% in recent years)

Long term, shares have outpaced (commercial) property returns.

It is too early to get a proper comparison based on similar criteria for the private rented sector, but its performance is likely to be poorer, because rental yields are lower and leases are shorter and with much less security, causing increased management costs.

ds1980

There is still great money to be made but its knowing where to look!

I have btl's up north and i could get a 100k house and receive rent of about £1300 a month.

Don't ever try and work out percentages but i know its better than 5% in a bank.

Also you have the cash there and then and can use it to fund your summer holiday in the south of france for 9 of the family. Now if thats not worth it i dont know what is!

Do your sums and you'll be fine. The people that just have btl's because they had some spare cash are stupid. Lynzpower you'll probably see this i have EA friends in east London and they see people all the time just buying flats etc but they'll have to put down 25-30% just to break even!!!

My flat in london breaks even but the other btl's pay for its shortfall.

THese are all long term investments as i don't have a pension and I will have them for many years to come. Will hopefully have their mortgaes paid off within 5-10 years. As far as i can see rental prices will only ever go up (over time) my mortgage payments will go down and my wages will go up....its a no brainer to me?