Buy to let no longer worth it?

TonyMMM

The government have signalled their intention to make BTL less attractive so that it reduces the upward pressure on house prices.

They want to do it without triggering a price crash, which is a very tricky thing to do .... the tax changes, announced well in advance, are part of that strategy.

HappyMJ

deaston wrote: »

This is what I'm wondering. Although the tax on the returns might now be higher, it's the capital gain that seems the thing to focus on.

My house has gone up £200k (46%) in five years. If I can but a property of similar value, in 20 years time, I could have quite a nice return, regardless of the tax on the returns. And I understand that, by living in the property for a period, it becomes your primary residence, so no capital gains?

You must live in London, South East or East of England or have timed the market very well or have made improvements to the property to see returns like that.

5 years ago in November 2010 my house was worth £125,000. Today it's worth about £140,000.

8 years ago in November 2007 my house was worth £160,000.

13 years ago in June 2002 I purchased my house for £80,000.

Timing is the key. If I had sold in 2007 I would have crystallized a large profit but people were buying in huge numbers as they were seeing the huge gains made over the previous 5 years. If I had bought in 2007 I would be in negative equity even today.

_CC_

deaston wrote: »

This is what I'm wondering. Although the tax on the returns might now be higher, it's the capital gain that seems the thing to focus on.

My house has gone up £200k (around 30%) in five years. If I can but a property of similar value, in 20 years time, I could have quite a nice return, regardless of the tax on the returns. And I understand that, by living in the property for a period, it becomes your primary residence, so no capital gains?

You'd be best asking someone who knows more about tax, but I think you'd only get some relief for the period you were in the property. For the sort of situation you're talking about you'd have CGT to pay upon sale if there's a gain. The only way I know of that allows you to no have CGT is if you had one lodger in your main residence (i.e. where you live), say using the rent-a-room scheme. Could be wrong.

Unless the world goes bonkers and they start introducing negative interest rates I can't see asset prices continue on the path they have over the past few years - it's on a large part driven be very loose monetary policy.

deaston

HappyMJ wrote: »

You must live in London, South East or East of England or have timed the market very well or have made improvements to the property to see returns like that.

I live in the South East, but not London. I bought in 2010 for 399,000 and have just sold for £585,000. We've not done anything to the house so I guess it's just the market.

Add to that the fact that our mortgage has always been less than 2%, it's been a great time to be in property, hence my desire to invest further.

HappyMJ

deaston wrote: »

I live in the South East, but not London. I bought in 2010 for 399,000 and have just sold for £585,000. We've not done anything to the house so I guess it's just the market.

Add to that the fact that our mortgage has always been less than 2%, it's been a great time to be in property, hence my desire to invest further.

If you had £399,000 in cash in 2010 and had invested wisely in stocks and shares in USD denominated shares you could have doubled your money though so doesn't that makes property a bad investment.

S&P 500, Nasdaq, and DJIA have all almost doubled in 5 years.

deaston

HappyMJ wrote: »

If you had £399,000 in cash in 2010 and had invested wisely in stocks and shares in USD denominated shares you could have doubled your money though so doesn't that makes property a bad investment.

S&P 500, Nasdaq, and DJIA have all almost doubled in 5 years.

I could also have lost the lot.

It doesn't make property a bad investment, just makes stocks and shares a potentially better one, but at much, much higher risk.

HappyMJ

deaston wrote: »

I could also have lost the lot.

And that could have been the same if you had invested in property using a mortgage and the economy did not improve. Your equity could have very easily have been wiped out. Don't rely on returns of the past to predict returns of the future. You need to look at the underlying fundamentals of any investment.

Generally house price inflation matches wage inflation in the area you invest in so an up and coming area should have good house price inflation but a property in an area with a declining market for whatever product they specialize in will fall in value.

London is very diversified so it's unlikely to devalue by too much unless the whole economy goes back into recession yet again.

dinkylink

Personally I don't think now is necessarily the best time to be getting into btl in the south east. With the huge increase in house prices over the past 2.5 years the yields just don't seem to be there. And as stated, the change in tax regulations may be an issue too.


Perhaps the canny thing to do would be to find some other, safer investment in the medium term and then pick up some bargains whenever the next housing crash is and go from there. But who knows when that will be?

_CC_

deaston wrote: »

It doesn't make property a bad investment, just makes stocks and shares a potentially better one, but at much, much higher risk.

This is a bit of a misconception.

If you were investing in individual companies or sectors, maybe. If you were to invest in broad indexes like the S&P, FTSE 250, pacific funds etc then I wouldn't consider these high risk at all, over the long term.

I think this is what drives a lot of people into BTL. They deem property as safe and shares as risky or a form of gambling.

fishpond

Do it.
Just need to pick an area using a bit of thought, depending on type of tenants you wish for and a little bit of luck.
Also read up on the law regarding BTL.