BTL vs Bigger House?

stphnstevey

I've been contemplating whether the better investment is to buy more BTL houses or to buy a more expensive home to live in.
Initially, a more expensive home seemed counter intuitive because there was a bigger mortgage that isn't paid by anyone else (like in BTL) but me. But after looking through the figures, it seems you can get the same returns even with taking out the extra mortgage payments
Assumptions
- 10% HP increase/yr
- 10% deposit residential mortgage
- 20% deposit BTL mortgage

£100,000 – invested in BTL or own house
BTL
Buys you - 20% deposit - £20k on 5x £100k houses
10% or 10K HP increase/yr
So on £20K invested, £10k/yr increase - Minus running costs - ROI ~40%

HOME
£100k deposit at 10% = £1,000,000 house
Mortgage at 5% HP = £50K/yr
HP increase 10% = £100k/yr
Total return/yr = £100k-£50k = £50k
ROI = 50%
So it seems buying a more expensive house produces vertically the same return as BTL, even with taking out the mortgage payments, but obviously without the hassle of renting and you get to live in a great house.
This assumes bank would lend based on income, were as BTL based on rental – would 2.5x joint annual salary be the norm now? You could run into problems if mortgage rates vary, but this would be the same for BTL.

Alias_Omega

Bigger House, BTL/Consent to Let, Rent for 5-10 years.

Terminate tenant. Move in..

Yorkie1

10% rise per year in house prices on a £100K house? Your assumptions for the basis of your figures need some work, I think.

stphnstevey

Yorkie1 wrote: »

10% rise per year in house prices on a £100K house? Your assumptions for the basis of your figures need some work, I think.

Over the long term that has been true, even with recessions, over ten years house prices vertially double, sometimes more than this so this is not unusual.

dimbo61

Are you a Landlord Now ?
Have you got any idea of the rules and regs involved in renting out a BTL property.
Your idea that with a 20% deposit that the banks will lend you £400K to buy 5 x £100K properties to a first time LL is something that you need to speak to a mortgage broker about.
You pay TAX, Stamp duty and Capital gains on BTL properties while you only have to pay stamp on your own home.

Fire_Fox

What are your plans if you get made redundant, fall ill or injured and cannot work, your tenants don't pay or trash the place? Are you factoring in taxation and the costs of buying and selling an extra property?

Increase in equity depends when you buy and sell and multiple local factors. I have owned this apartment since 2004, in around 2007 it was worth 50% more than I paid, I suspect if I sold in 2014 it would be worth what I paid or a little more. No problem to me as an owner occupier.

stphnstevey

I realise this is a simplified equation and there are lots of other factors, but I simplified it to test the basic theory - could I just buy more expensive house and reap the benefits of living in it rather than the more troublesome BTL

What amazed me was that it seems it is possible

Certainly you have to make some basic assumptions (which as assumptions, could be wrong or right but are just a best estimate to give you an idea) and there is a mutitude of other factors that MAY or MAY NOT effect the overall result, just like anything

Yes I am currently a landlord and understand letting. But my plans were always to buy more and more untill retirement where sell and pay off my own mortgage.

But it seems I could make the same return on my money with quite a lot less hassle and actually a very nice benefit of living in a more expensive house

mjdh1957

stphnstevey wrote: »

Over the long term that has been true, even with recessions, over ten years house prices vertially double, sometimes more than this so this is not unusual.

This takes no account of inflation over the same period. Real house prices, taking that into account, are much more volatile and can plummet as they did in the 1980s.

missile

Your assumptions and calculations seem to be flawed.

Your business stategy appears to be based entirely on house prices increasing by 10% year on year. I would suggest very few would agree this is a sound assumption.
You make zero profit on your current BTL investments?
You have ignored buying and selling costs.
You have ignored stamp duty.

stphnstevey

Nationwide statistics

Average house prices increase per 10yr period from 1960 to 2010, with 10yr % change and average % change per year:

Amount 10yr % Yr %
1960-1970 £2,189 100% 10%
1970-1980 £18,2994 18% 42%
1980-1990 £36,910 163% 16%
1990-2000 £18,111 30% 3%
2000-2010 £85,189 110% 11%
Average 10yr 164% 16%

Loopgames

Depends if you are interested in income vs capital gain. Capital gain is only realised once you sell so buying a bigger house ensures you never realise that gain unless of course you sell in which case you will downsize into a not so awesome home.

The plan sounds unrealistic.