Who won in the end?

Cornucopia

This thread isn't about BTL.

However, BTL is very much a DIY investment. You can certainly make money from it (it's nonsense to say otherwise). You can equally not make money or lose money (and it's equally nonsensical to think otherwise). You bear the risk of constructing your investment "properly". People should at least look over the figures in some detail, and be honest about them.

London points up an important point about BTL which some people don't seem to realise- the margins vary depending on property type, size, area and suitability for particular types of tenant. It's not guess-work, though, because the basic figures are there for you before you commit to buy. [London has the characteristic of rents being low relative to property prices].

The BTL Lenders do their best to put some basic protections around the figures to ensure they work, so I would suggest following that (minimum rental income as a proportion of the mortgage payment at a notional future normal rate). It's still not guaranteed, but the figures expressed that way are more compelling.

wotsthat

chucknorris wrote: »

I bought my first investment property 24 years ago, would I do it all again if I was 24 years younger? No, I think that the combination of the recent budget changes and the historical high value of London (where mine are) property has swung against property now. That's just my opinion of course. I'm not saying that it doesn't work, but IMO it is no longer a stand out investment, like it was.

I think people get into BTL for the wrong reason based on articles like this....

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11724160/We-earn-47000.-Can-we-get-into-buy-to-let-and-retire-at-50.html

A couple in their early thirties earning £47k between them with no pensions, c£6k in cash and living in a 2 bed house purchased on RTB

They want to..

a) buy a bigger house
b) start a family
c) start building a BTL portfolio
d) retire at 50

I'm surprised they didn't add private education to that list.

Neither expert seems to suggest this is unlikely especially given their willingness to accept 'medium' risk and their current circumstances.

Cornucopia

To be fair, the second adviser is fairly negative about BTL as an investment, and recommends that the couple don't build a portfolio (buying one as a maximum).

chucknorris

wotsthat wrote: »

I think people get into BTL for the wrong reason based on articles like this....

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11724160/We-earn-47000.-Can-we-get-into-buy-to-let-and-retire-at-50.html

A couple in their early thirties earning £47k between them with no pensions, c£6k in cash and living in a 2 bed house purchased on RTB

They want to..

a) buy a bigger house
b) start a family
c) start building a BTL portfolio
d) retire at 50

I'm surprised they didn't add private education to that list.

Neither expert seems to suggest this is unlikely especially given their willingness to accept 'medium' risk and their current circumstances.

Their wish list is quite ambitious, given their current position, and only 17 years to their planned retirement. There will probably be an economic downturn within that time frame too.

wotsthat

Cornucopia wrote: »

To be fair, the second adviser is fairly negative about BTL as an investment, and recommends that the couple don't build a portfolio (buying one as a maximum).

Hardly medium risk though. Buying an investment in one large chunk with borrowed money making the biggest part of their net worth is a big risk. People would be having kittens if the recommendation was that instead of buying a £120k BTL they purchased a £120k FTSE tracker on credit instead.

Given the couple's circumstances I can't see much of a difference in risk and there's certainly a lot less hassle and running costs.

The main difference is BTL is one of the few asset classes where the average punter can borrow to invest so is bound to attract would be entrepreneurs with no money, no expertise and big dreams. It doesn't mean people can't make money but I'd expect people like this couple to drag the average return down.

Cornucopia

I think a BTL can be a medium-risk investment. I suspect that the couple's income is not too bad given the part of the country they live in. If I were advising them (I'm not an adviser) I would certainly tell them to get other assets covered first, before considering BTL. I'd also possibly suggest utilising their existing property, especially if the mortgage terms were favourable.

Personally, I like the fact that property is a tangible asset. Whilst that limits its liquidity, it also provides other options like being able to live in a failed BTL investment yourself, if it comes down to that. The basic proposition of buying a property is not significantly riskier when Bought-to-Let than when bought to live in - not if you've done your figures properly.

Presumably, the finance editor picked that couple, because they were "borderline", and would therefore make for an interesting article.

wotsthat

Cornucopia wrote: »

The basic proposition of buying a property is not significantly riskier when Bought-to-Let than when bought to live in - not if you've done your figures properly.

Don't know about that. You'll never get a better tenant than the one you get when you buy a house to live in.

Cornucopia wrote: »

Presumably, the finance editor picked that couple, because they were "borderline", and would therefore make for an interesting article.

A BTL article showing anyone can do it will draw more clicks and attention than 'rich person buys a house to rent out'

TheBlueHorse

I haven't read the entire thread, so apologies if already been said:


I think some of it depends on how long you get to live "rent free" in your abode.


If you finish paying mortgage at 60 and live until you are 85, that is 25 yrs of rent free living. The renter will still have to find funds to pay their rent for those 25 years.


Also, the home owner can sell and downsize, so potentially live rent free and have a nice chunk of cash.

Yes, the homeowner may have to change the boiler at some point, but so what?

mwpt

TheBlueHorse wrote: »

I haven't read the entire thread, so apologies if already been said:

I think some of it depends on how long you get to live "rent free" in your abode.

If you finish paying mortgage at 60 and live until you are 85, that is 25 yrs of rent free living. The renter will still have to find funds to pay their rent for those 25 years.

The renter who made an informed decision will have the funds to cover that, or to simply buy a house mortgage free out of saved equity at 60 years of age.

Also, the home owner can sell and downsize, so potentially live rent free and have a nice chunk of cash.

Yes, the homeowner may have to change the boiler at some point, but so what?

The point is to make an informed financial decision either way. But I think it is safe to say that as long as past performance is an indicator of future performance (heh), buying is the better strategy in almost every case.

I know my friends haven't made informed financial decisions when they used to tell me that their mortgage was now much cheaper than their rent, but they previously rented a spacious 3 bed semi next to convenient transport, and they now own a 2 bed maisonette in a worse area and far from any station. The average buyer just doesn't think in nuances. Which I guess is why property will always be a good bet?

TheBlueHorse

how does that work when most rents (at the moment) are higher than mortgage payments?

I couldn't pay my mortgage and then buy another house for cash at 60. So how can a renter, paying more in rent than I pay a month for a mortgage?

Also, why would the renter, who has chosen to rent - because it is better than buying - want to buy all of a sudden, at 60 years old?