Renting in your 40's and staring into the abyss

Cornucopia

Sure.

I'm just thinking of my most commercial property, which rents for 330% of the fixed rate mortgage. In other words, I only need one in three rent payments to break even. I think most LLs would want also to be in the position where they could cover the mortgage payments, or even pay off the mortgage, if they needed to. I appreciate this makes more sense with a small number of properties than a larger one.

Also, I think see the greatest risk of losing money as fundamentally about the first few months - either the delay in getting a tenant, or the possibility that a new tenant will default. Once there is money in the bank, that can offset potential future liabilities.

That's how I see the risks, anyway.

My objection to the property bears' characterisation of LL risk is that (a) the bears themselves are not the most economically shrewd group of people, (b) they haven't really thought about what the risks are, how they manifest themselves and how they can be mitigated, and (c) they wish to falsely portray a naive or reckless LL community for political reasons.

chucknorris

Cornucopia wrote: »

Sure.
My objection to the property bears' characterisation of LL risk is that (a) the bears themselves are not the most economically shrewd group of people, (b) they haven't really thought about what the risks are, how they manifest themselves and how they can be mitigated, and (c) they wish to falsely portray a naive or reckless LL community for political reasons.

Totally agree with this, Crashy is a prime example, he keeps all his ('cash rich') money in savings accounts, he still rents in his 40's (by choice) and from what I can see, he just isn't capable of recognising what represents value.

GunJack

Cornucopia wrote: »

I can't imagine it's pleasant for the Tenant if the Lender repossesses a LL's property, but I also can't imagine it happens that often..

maybe not, but when if/when it does, wouldn't it be an idea if the lender retained the property, and the rent effectively paid the mortgage to itself? OK, so there may be some need to pay a maintenance company to look after the properties, but mortgage repaid over time, plus the bank has a valuable asset until sold...

just a thought.....

wotsthat

dktreesea wrote: »

Provided they manage to hang onto their job, or don't get "restructured" into a job, sometimes even the same job in all but title, that pays considerably less than what they get now.

Exactly right. The biggest risk to an individual homeowner is a sustained loss of income. Any increase in interest rates will be an inconvenience for most and recent buyers should be OK with any likely increases because the stress tests are more than robust.

Mortgage lenders don't have a crystal ball so don't know who might be made redundant or restructured and so risk assess based on average arrears and repossession rates both of which are falling.

Cornucopia

GunJack wrote: »

maybe not, but when if/when it does, wouldn't it be an idea if the lender retained the property, and the rent effectively paid the mortgage to itself? OK, so there may be some need to pay a maintenance company to look after the properties, but mortgage repaid over time, plus the bank has a valuable asset until sold...

just a thought.....

It's a nice idea, and it could work if the Lender(s) set aside some funds to somehow buy out the LL's share, or at least part of it, pending the sale.

The difficulty comes if the figures simply don't work, and then what was a money-losing proposition for the LL becomes one for the Lender.

wotsthat

chucknorris wrote: »

Totally agree with this, Crashy is a prime example, he keeps all his ('cash rich') money in savings accounts, he still rents in his 40's (by choice) and from what I can see, he just isn't capable of recognising what represents value.

It's because he applies such a large discount to non-cash assets that his notion of value and worth is skewed. I like his idea of dividing cash by expenses to calculate the number of years he can live without working but I fear that's the only metric he uses to calculate net worth which means there's bound to be an unhealthy focus on cash savings.

The bias against home ownership is blatant. If I told him my house had increased in value by £1000 he'd argue that wasn't a real £1000 until I sold up and realised the gain. On the other hand if I told him it had fallen by £1000 then we can be certain the same logic wouldn't be applied. Gains have to be realised to be real but losses are losses whether realised or not. The contradiction is laughable.

Thrugelmir

chucknorris wrote: »

So you agree with me then, you have to be careful with any business venture. Idiots in business are not confined to property, you will find others that were doomed to failure in other ventures, that they didn't analyse enough, before leaping in.

If they don't know how they stand to a 'what if', they should stick to savings and simplier investments.

Pulled apart many a financial business plan over the years. Over optimism plays a major part. Majority of businesses fail due to poor cashflow. Rather than the concept or the individual themselves.

Striking thing at the moment is the low yields people are willing to accept on property. Margin for error is therefore very small.

chucknorris

Thrugelmir wrote: »

Pulled apart many a financial business plan over the years. Over optimism plays a major part. Majority of businesses fail due to poor cashflow. Rather than the concept or the individual themselves.

Striking thing at the moment is the low yields people are willing to accept on property. Margin for error is therefore very small.

That is the main point of analysing it, to see what the cashflow is like, especially at different rates of mortgage interest.

EDIT: IMO you will see far less taking on of property now with low yields and a high loan to value mortgage, when you can only claim 50% of the mortgage interest (for higher rate tax payers). It is too much of a loss leader, the cashflow is negative for far too long. Or rather I should say, I don't believe that it represents value to do that, but no doubt some will continue to do it anyway.

GunJack

Cornucopia wrote: »

It's a nice idea, and it could work if the Lender(s) set aside some funds to somehow buy out the LL's share, or at least part of it, pending the sale.

The difficulty comes if the figures simply don't work, and then what was a money-losing proposition for the LL becomes one for the Lender.

I thought we were talking about the lender having repossessed, so the lender wouldn't have to buy out the LL?? So it would work as I described, surely?

wotsthat

GunJack wrote: »

maybe not, but when if/when it does, wouldn't it be an idea if the lender retained the property, and the rent effectively paid the mortgage to itself? OK, so there may be some need to pay a maintenance company to look after the properties, but mortgage repaid over time, plus the bank has a valuable asset until sold...

just a thought.....

As a bank shareholder I'd be alarmed if they decided to move into a lettings business and even more concerned if the stock consisted only of BTL's that had failed.

I'd also be asking why they had sufficient repossessions to make a lettings business viable and wondering if their lending criteria were sound.