Why buy – ever?

ukcarper

lisyloo wrote: »

I obviously had to estimate HPI, rent increases and investment returns and I almost certainly underestimated HPI.
I think we would have already missed the boat in SW1 though.

Yes certainly changes in those factors mentioned including HPI would make a difference. But I still wouldn't buy on the basis of just a 6 month work contract. In fact I started with 1 week in the Travelodge then serviced apartments before committing to renting, so there were other reasons for not buying initially beyond the maths (as there always are).

Whichever way you jump there are risks.
Personally I think I'm happier with a balanced portfolio.
I'm prepared to forego more risky gains for a level of safety/comfort, so I guess it comes down to your appetite for risk/reward.
I do like the fact that we can pack a suitcase and go even though that flexibility comes at a price.

Yes makes sense to me especially as I believe you own a house outside London.

martinsurrey

lisyloo wrote: »

Really?
You think landlords do this for nothing or at a loss?
Take a step back.
Lanlords make money. Therefore it's going to be cheaper to provide your own accomodation.
Why would landlords provide this service if they weren't making a profit?

I think BMW make a profit as well, that doesn't mean I would be better of building my own 3 series...

The LL might have different opportunity costs to someone else, he might be happy making X% from an investment while you could get more from somethings else, making it more profitable for you to rent from him and use your capital to seek a higher return.

Taken as a whole the statement "if a landlord makes a profit it must be better to to buy than rent" is false it might be but not necessarily.

lisyloo

I think BMW make a profit as well, that doesn't mean I would be better of building my own 3 series...

In general if it's a product/service that you can reasonably provide yourself then you would save money by doing it yourself rather than paying someone else who has to pay the costs of running a business, pay taxes and take a profit.
Clearly there are some goods and services (like root canal surgery?) that are not feasible to provide yourself, but providing housing and maintaining a house is normally fairly straight forward and doesn't require specialist skills.

The LL might have different opportunity costs to someone else, he might be happy making X% from an investment while you could get more from somethings else, making it more profitable for you to rent from him and use your capital to seek a higher return.

For the vast majority of unsophisticated investors there will not be better investments available when taking account of the need to pay for somewhere to live.
PPRs are tax free and gains are GEARED.
I agree there will be exceptions.

Taken as a whole the statement "if a landlord makes a profit it must be better to to buy than rent" is false it might be but not necessarily.

In general landlords make profits, have business costs and pay taxes.
In general most unsophisticated investors would be better off not paying for those costs.
Of course there are exceptions, but in general in will cost the householder long term to have a landlord involved. That's only common sense.
I agree with you that some sophisticated investors may be able to do better (difficult when you take gearing into account), but that's not the majority of the population i.e. you average bus driver or shop assistant.

martinsurrey

lisyloo wrote: »

I agree with you that some sophisticated investors may be able to do better (difficult when you take gearing into account), but that's not the majority of the population.

haha we crossed sides there, a few posts ago I as saying buying was better, and you on the not side, then we switched, but i think we're on the same page, buying is better long term, in most cases but not always.

I am generally against blanket statements, there is always gray where money is involved.

lisyloo

a few posts ago I as saying buying was better, and you on the not side

Buying as a home long term is generally better (there are exceptions but provided you don't buy at a peak, get divorced immediately, buy over a sink hole etc.). One major reason is gearing, but another is not paying the landlords business costs, taxes and profit (which logically HAVE to cost in general).

What I am against is people saying buying is ALWAYS better and we're probably in agreement on that.

Some unfortunate people in St Albans have a great big sink hole in their street, so there are risks which should be recognised.
If I'm making a major life changing decision then I tend to put some effort into the analysis for the particular situation.

mwpt

lisyloo wrote: »

Really?
You think landlords do this for nothing or at a loss?
Take a step back.
Lanlords make money. Therefore it's going to be cheaper to provide your own accomodation.
Why would landlords provide this service if they weren't making a profit?

I can't tell if you're addressing me or not. That was my line, but if you are I think you missed the sarcasm in my post.

lisyloo

but if you are I think you missed the sarcasm in my post.

Sorry :-)

Yes, I often miss sarcasm in the written word especially if I don't know the poster. It's blindingly obvious that adding another business will cost money.

System

Mwpt - house price inflation is between 5-10% generally and that alone is difficult to reliably beat, I'd like to see what else performs like this, otherwise why would banks be lending out mortgages at lower interest rates than this when they could go for 'other' investments

As well as capital gains there's rental income - pro landlords have (before Osbourne's changes coming in) tended to make their mortgage exposure, so they could deduct the interest against taxable rent and spread their money over more properties to maximise returns - so its a fair assumption that most buy to let's are mortgaged - now bear in mind its common for banks to demand that rent must be at least 125% of the mortgage, so already its impossible for letting to actually be cheaper - consider as well the landlord has to pay tax, insurance and service charges as well as getting gross rental yields of 5-10% and the rent can be bolstered further

And when you do take out a residential mortgage, they ask your retirement age, and its rare to ever get one for longer than 35 years, so if started young it will finish before retirement. The amount paid in mortgage over a lifetime can also be dramatically reduced by switching products and making overpayments. You could even buy cheaply at auction where chain buyers are ruled out, or ex council where there might be a no letting clause making it cheaper

mwpt

MatthewAinsworth wrote: »

Mwpt - house price inflation is between 5-10% generally and that alone is difficult to reliably beat, I'd like to see what else performs like this, otherwise why would banks be lending out mortgages at lower interest rates than this when they could go for 'other' investments

If house prices are guaranteed 5-10% capital gains alone on a leveraged investment, then there is nothing that can beat it. Does that not ring any alarm bells to you?

As well as capital gains there's rental income

And right here you've summed up all that is wrong with some of BTL investing. Your statement should be :

"the rental income is consistent and offers a good ROI. After that capital gains are a bonus".

System

Mwpt - the reason property inflation is roughly 5x income inflation is because mortgages at todays rates allow you to borrow 5x yours / your joint income - that is actually quite a sustainable figure in a low interest rate - housing shortage environment, because it is scaling with wages by expectations.

The BoE hasn't felt like consistent 5-10% property inflation is a reason to hike rates, in truth its terrified of banks collapsing if people defaulted if prices dropped - ie if it did hike rates - which is why you saw QE pumped directly into mortgage lending, to preserve the market.

And its up to the investor whether its capital gains or rental income or both they're mainly after, neither can be ingnored, its just easier to illustrate the gains by letting the rent pay the bills. Rental income is a more attractive income in a way because its more immediate