London property prices to fall 30%....

chucknorris

cells wrote: »

Most the landlords i know hold on until retirement and more often longer until they are on their death bed. Biggest landlord I know is 75 now and still has his BTLs been talking about selling for the last 5 years but never does

In some cases I reckon its how the older landlords keep some sense of worth and it gives them something to do part time. The alternative of sitting at home 7 days a week with the wife probably isn't a good alternative for them. So price is perhaps irrelevant to them it's their 'job' until they are forced to give up

You have probably noticed me musing over when to sell. I imagine that these landlords have children to pass the property on to? But we do not, so it needs to be spent at some point, if we had children we would take a different approach, and that would be leave it mostly to them. In our later years they could manage it for us (and paid for doing so) and it would be left to them.

I've got far better things to do with my time than being sat at home all day, that's one of the reasons that I am taking early retirement next summer.

sebtomato

chucknorris wrote: »

The problem is that the alternative investments to re-invest the equity are still poor by comparison

In the example provided, a £400K flat being rented out for £1,200 a month, that's a very poor return of 3.6% per year, before service charges, repairs, management charges, gaps in tenants, unpaid rents, tax etc. I can beat this very easily.

Without the capital growth/property prices going up (which they won't for ever), this is not great investment, not very liquid and a lot of hassle for a poor return.

Once the sentiment is that property prices won't go up anymore for some time, many people will sell those investment properties, and the market will drop further.

I think the vast majority of BTL investors do this for an investment, as opposed to occupy their spare time. The examples people have mentioned are exceptions...

chucknorris

sebtomato wrote: »

In the example provided, a £400K flat being rented out for £1,200 a month, that's a very poor return of 3.6% per year, before service charges, repairs, management charges, gaps in tenants, unpaid rents, tax etc. I can beat this very easily.

Without the capital growth/property prices going up (which they won't for ever), this is not great investment, not very liquid and a lot of hassle for a poor return.

Once the sentiment is that property prices won't go up anymore for some time, many people will sell those investment properties, and the market will drop further.

I think the vast majority of BTL investors do this for an investment, as opposed to occupy their spare time. The examples people have mentioned are exceptions...

The gross yield (certainly in industry) is generally only used to compare two properties (even then, it is only an indication). The gross yield is not an accurate method to identify profitability, because the actual amount invested (if a mortgage was used to purchase the property) is not being considered. So with respect, you are not analysing the investment correctly.

My own properties only yield (gross) about 3.75%, but that doesn't particularly mean anything (unless I was comparing one property to another). What is much more meaningful, is the net yield based upon the equity released, if the property is sold, in my case that is 7.5% (so it is double my gross yield). One of the main dampeners (for me) is the reduction to the equity from CGT and estate agents fees. This acts as an encouragement to stay in the market longer, the other side of the coin, is that substantial equity needs to be released, and I need to leave enough time to spend that equity before I die (I'm 57 and I am working on about 33 years), and I also need to keep an eye on the market too, when I get into my 60's I will also have to monitor my health too.

I do have days when I think I should sell something, so maybe the time is nearing for a partial sell, if I had children I would keep (most of) the properties to pass on to them.

EDIT: We have only bought one investment property in the last 12 years, and we will not be buying any more. Increasing my dividend income to boost retirement income is my current goal, and that has been my position for a few years now.

ognum

cells wrote: »

Most the landlords i know hold on until retirement and more often longer until they are on their death bed. Biggest landlord I know is 75 now and still has his BTLs been talking about selling for the last 5 years but never does

In some cases I reckon its how the older landlords keep some sense of worth and it gives them something to do part time. The alternative of sitting at home 7 days a week with the wife probably isn't a good alternative for them. So price is perhaps irrelevant to them it's their 'job' until they are forced to give up

This is an incredibly sexist post. Most LL I know are female.

System

ognum wrote: »

This is an incredibly sexist post.

Only if you're desperately looking for something to be offended by.

Conrad

As Chuck points out, its yield based on equity that counts, not yield based on asset value. That's what often maes B2L so attractive. One example I have is equity of £50k and income costs of £5500pa, not to mention capital growth.

lisyloo

As Chuck points out, its yield based on equity that counts

I'd be grateful if you could explain this to me further.
I understand that your personal profit depends on what you paid for the property.
So if for example you paid £100K for a flat now worth £400K, then your personal yield may be good for what you put in.
But when considering what it's best to do with the money NOW, you might be able to get a better yield elsewhere by liquidating that £400K (obviously stamp duty, CGT etc. have to be factored in).

I know that properties aren't liquid and not something you can treat like day-trading shares, but surely it's the latter you should be considering? i.e. the lost opportunity cost.

k12345678

lisyloo wrote: »

I'd be grateful if you could explain this to me further.
I understand that your personal profit depends on what you paid for the property.
So if for example you paid £100K for a flat now worth £400K, then your personal yield may be good for what you put in.
But when considering what it's best to do with the money NOW, you might be able to get a better yield elsewhere by liquidating that £400K (obviously stamp duty, CGT etc. have to be factored in).

I know that properties aren't liquid and not something you can treat like day-trading shares, but surely it's the latter you should be considering? i.e. the lost opportunity cost.

You cant remove equity without mortgaging that amount otherwise you would have to sell the property. Cant have your cake and eat it!

lisyloo

You cant remove equity without mortgaging that amount otherwise you would have to sell the property. Cant have your cake and eat it!

That's what I meant - selling.
Let's stick with the example and suppose you have £100K mortgage on £400K property.
You could sell, withdraw £300K and get a better return.
I can now see that's exactly what Conrad said - thanks.

chappers

sebtomato wrote: »

In the example provided, a £400K flat being rented out for £1,200 a month, that's a very poor return of 3.6% per year, before service charges, repairs, management charges, gaps in tenants, unpaid rents, tax etc. I can beat this very easily.

But if you had only paid £100k for that property then your current gross yield is 14.4% and if you sell up after say a 25 year mortgage period for £400k then your average annual gross yield based on equity growth will have been 12%.

BTL isn't all about immediate rental yields, like any other investment its about predicting the future and deciding where your money is best placed over the period in which you want to invest. If it's short term then yes rental yields compared to current returns are important but if long term then equity growth is probably a more important factor.