For all the BTL fans

colsten

An interesting story that I will follow to see whether they are making a profit. Assuming they will keep their blog running.

http://www.arbing.co.uk/london-property-investment/

the_flying_pig

pretty sensible blog post, sounds like he's getting into it with eyes fully open.


I suppose that BTL now, especially in London & the South East, is a bet on negative or very low real interest rates continuing into the medium term.

Graham_Devon

the_flying_pig wrote: »

pretty sensible blog post, sounds like he's getting into it with eyes fully open.


I suppose that BTL now, especially in London & the South East, is a bet on negative or very low real interest rates continuing into the medium term.

I would agree with that, never seen such a refreshing blog article from a landlord telling it exactly as it is. Was expecting much more profit than £66 a year.

Seems like a pure gamble. So one has to assume they can easily afford this gamble. They got 100k from somewhere afterall, so I would imagine funds are not really an issue. They don't seem to phased by the potential losses they talk of.

One thing I'm not sure they have factored in is this new landlord tax regime?

Edit: Infact looking a little further into the blog, it seems cash isn't an issue at all!

leveller2911

Had a really hard day at work today and I'm sure I'm missing the obvious but how does the quote below add up if the tenant is paying £1,100-00 per month?.. I'm sure the tenant doesn't quite see it the same way.

"That’s right. £66 pounds a year! In other words, our tenant is living in the flat almost for free! They’re just covering the costs of running the flat, as landlords we’re making almost nothing! Imagine if interest rates go up? I’ll be paying someone to live in my flat!! Crazy.

cells

leveller2911 wrote: »

Had a really hard day at work today and I'm sure I'm missing the obvious but how does the quote below add up if the tenant is paying £1,100-00 per month?.. I'm sure the tenant doesn't quote see it the same way.

"That’s right. £66 pounds a year! In other words, our tenant is living in the flat almost for free! They’re just covering the costs of running the flat, as landlords we’re making almost nothing! Imagine if interest rates go up? I’ll be paying someone to live in my flat!! Crazy.

It means the renters rent covered just the running costs of the BTL

however that is a bit unfair as the renter if they owned the flat wouldn't need to pay 10% to an agent to manage it nor would they have two weeks vacant to account for

chucknorris

leveller2911 wrote: »

"That’s right. £66 pounds a year! In other words, our tenant is living in the flat almost for free! They’re just covering the costs of running the flat, as landlords we’re making almost nothing! Imagine if interest rates go up? I’ll be paying someone to live in my flat!! Crazy.

So many make this error, they focus on the initial yield, property is along term investment, and over the years the profit grows, because whilst interest rates fluctuate, rents rise with inflation. Every single one of our properties showed little or no profit in year one, now the profit in our tax returns is up to about £100k per annum.

Graham_Devon

cells wrote: »

More typical in inner London

Purchase £500,000
Deposit £125,000
Mortgage £375,000
Stamp duty £15,000
Solicitors and valuation £1,000
Mortgage fees £1,000

Annual Rent ~£27,000
Interest on mortgage £15,000
1 months rent as void and agent fee £2,250
Maintenance £750

= ~£9,000 before tax
= ~£5,400 post tax (@40%)

With the new tax rules coming into effect the same would drop to £2,400 post tax return

The same equity of ~£150k put into fixed savings at 3% would return £2,700 post tax (£4,500 in an ISA)


so if there was no HPI or rent price inflation its probably not worthwhile. However most BTLers probably expect HPI/RPI

But it's not typical though is it.

The average rent in May 2015 in London was £1,500.

Your "typical" amount is 33% over the average.

Your maintanance meanwhile is 50% below where it should be as an average. Taken from the article below, the average maintanance for landlords is £1,533 a year. I would assume higher in inner London should you need the services of an electrician etc.

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11568218/Landlords-underestimate-real-8359-cost-of-buy-to-let.html

(The article does talk about landlords overestimating returns by underestimating costs).

Crashy_Time

chucknorris wrote: »

So many make this error, they focus on the initial yield, property is along term investment, and over the years the profit grows, because whilst interest rates fluctuate, rents rise with inflation. Every single one of our properties showed little or no profit in year one, now the profit in our tax returns is up to about £100k per annum.

There has not been any meaningful wage inflation for years. London rents are skewed upwards by HB, financial sector wages, and generally being in the epicentre of the credit bubble that has more or less died out in the rest of the country. Entering BTL now is strictly for the crazies.

michaels

cells wrote: »

More typical in inner London

Purchase £500,000
Deposit £125,000
Mortgage £375,000
Stamp duty £15,000
Solicitors and valuation £1,000
Mortgage fees £1,000

Annual Rent ~£27,000
Interest on mortgage £15,000
1 months rent as void and agent fee £2,250
Maintenance £750

= ~£9,000 before tax
= ~£5,400 post tax (@40%)

With the new tax rules coming into effect the same would drop to £2,400 post tax return

The same equity of ~£150k put into fixed savings at 3% would return £2,700 post tax (£4,500 in an ISA)


so if there was no HPI or rent price inflation its probably not worthwhile. However most BTLers probably expect HPI/RPI

You have either missed the cost of 1 month of void or the cost of the agents fees (often 9% unmanaged or 15% managed so another 4050). You also need insurance approx 500. You have done 4% interest which is probably realistic for a 5 year fix, lower is available for a short term fix/discount rate.

So the profit is already a lot thinner even for standard rate taxpayers, but you have possibly overestimated the return on the cash in the bank.

Plus say you plan to hold for 10 years you pay agents fees and another set of legal fees on sale - say 6k so that gives 27k of fixed costs spread over 10 years is 2700 pa - ie there is no profit over and above HPI and a potential operating loss if rates are higher in 5 years.

chucknorris

Crashy_Time wrote: »

There has not been any meaningful wage inflation for years. London rents are skewed upwards by HB, financial sector wages, and generally being in the epicentre of the credit bubble that has more or less died out in the rest of the country. Entering BTL now is strictly for the crazies.

Says the guy who sold to rent decades ago :rotfl:

Our rental income has risen about 10% in the last 3-4 years.

Crashy_Time

chucknorris wrote: »

Says the guy who sold to rent decades ago :rotfl:

Our rental income has risen about 10% in the last 3-4 years.[/QUOTE]


Your tax bill is about to rise to compensate :rotfl: