BTL Returns

mwpt

cells wrote: »

No investor in anything has a fixed sum they want or they will go home. If you have savings it has to be in something. The three big asset classes are shares property and bank savings account

Personally my limit would probabkly be 1% above shorter term savings accounts and MSE shows a top rate of 2.2% so add 1 to that to give 3.2%

So maybe as a general rule I would want 1% more for property and 3% more for shares than i wouod get in a savings account.

Of course if the UK was a country that built 400,000 homes a year like it should I would want more from property maybe the sane +3% as shares as I wouldn't expect to get much real term capital growth.

But again what I want and what happens are two very different things I'm not a market maker

That's what I was looking for, thanks cells.

mwpt

Generali wrote: »

In simplistic terms, this is how bond pricing works (bonds are a bit more complex because they mature which property does not).

There is definitely an argument to be made that property in London has been behaving like bonds during the period of NZIRP which might make the process of rates normalizing quite interesting. Rates normalizing doesn't mean them going up to 2% IMHO.

Yes, this is what I'm working toward. I'm trying to understand what sort of floor might exist on London properties. I know that there are so many events impossible to predict, so it's almost a pointless exercise but interesting to me nonetheless.

I'm also interested in comparing buying to let for cash vs buying to let on using leverage.

Generali

mwpt wrote: »

Yes, this is what I'm working toward. I'm trying to understand what sort of floor might exist on London properties. I know that there are so many events impossible to predict, so it's almost a pointless exercise but interesting to me nonetheless.

I'm also interested in comparing buying to let for cash vs buying to let on using leverage.

Short term there isn't a floor really: as we saw in the GFC, if there simply aren't buyers then the price of real assets can effectively go to zero.

Longer term the floor is the rent that supports the mortgage or the rent that is paid as an alternate to a mortgage I reckon.

mwpt

Generali wrote: »

Short term there isn't a floor really: as we saw in the GFC, if there simply aren't buyers then the price of real assets can effectively go to zero.

Longer term the floor is the rent that supports the mortgage or the rent that is paid as an alternate to a mortgage I reckon.

I was working toward testing a conclusion that the floor is (fuzzily) around the bond like price of the asset with a cash purchase chasing X% yield. I just wouldn't have a clue what that X% would be (X being the median yield that cash investors would chase).

Generali

mwpt wrote: »

I was working toward testing a conclusion that the floor is (fuzzily) around the bond like price of the asset with a cash purchase chasing X% yield. I just wouldn't have a clue what that X% would be (X being the median yield that cash investors would chase).

The difference between a regular bond and a house is that a house doesn't mature and so is like a fairly unusual type of bond known as a perpetual (if it is bond like at all, something that not everyone would agree with). As a result there is no face value that will be returned one day.

chucknorris

mwpt wrote: »

I was working toward testing a conclusion that the floor is (fuzzily) around the bond like price of the asset with a cash purchase chasing X% yield. I just wouldn't have a clue what that X% would be (X being the median yield that cash investors would chase).

I can only speak for myself, but looking forward, my preferences would be to invest in shares, then property (but there isn't any reason for me to look past shares, except maybe portfolio diversity eventually), then bonds (as I get older bonds will eventually catch up with property). I haven't got a crystal ball that predicts capital growth, so my current preferences tend to be based on income. The reason that I now prefer shares over property is:

1. Liquidity, this helps avoid capital gains tax.

2. Liquidity also to a lesser extent, helps to withdraw the equity over a prolonged period, which has become a factor due to my age, and having no children to leave the properties to.

3. Tax efficiency, my rental income is taxed at 40% whereas shares are taxed at 32.5% (I am already over the £5k tax free allowance for dividend income). Also the recent tax changes to property make shares more appealing. When I eventually sell of all my properties, I would also be taxed at only 7.5% on part of my dividend income.

4. Not so sure about this one, but if we did move to a tax haven (Isle of Man, Gibraltar or Guernsey) I think it would probably be easier to have the dividend income taxed at the local rate.

5. I don't have to do anything for the dividend income, it is passive income, true I could have the properties managed, but that is also an additional cost (see 6 below).

6. When the base rate gets to about 2.5% dividend income is more profitable than rental income for me.

chucknorris

Generali wrote: »

The difference between a regular bond and a house is that a house doesn't mature and so is like a fairly unusual type of bond known as a perpetual (if it is bond like at all, something that not everyone would agree with). As a result there is no face value that will be returned one day.

When you do redeem the house though, it is likely that capital growth will have occurred. As long as you invest for the long term, and don't 'need' to sell. But of course they have other different characteristics too, i.e. bond interest is passive income, bonds don't ring you up at the weekend asking you to sort a plumbing problem out.

michaels

Interesting comments that if yield went low enough some BTL owners would cash out....so thei begs the question, if yields go low enough would it make sense to sell to rent?

Obviously str is a very risky strategy as unless you never plan to own property again (which might be via helping children onto the property ladder rather than directly) then you are effectively 'short' housing. Plus of course PPR has huge tax advantages (arguably extremely unfiar but such is life).

However if it got to the point where the capital in your house could earn you 5k per month invested eleswhere and you could rent an equivalent house for 3k per month then str would start to make sense wouldn't it? (plus there is the saving on maintainance etc).

chucknorris

michaels wrote: »

Interesting comments that if yield went low enough some BTL owners would cash out....so thei begs the question, if yields go low enough would it make sense to sell to rent?

Obviously str is a very risky strategy as unless you never plan to own property again (which might be via helping children onto the property ladder rather than directly) then you are effectively 'short' housing. Plus of course PPR has huge tax advantages (arguably extremely unfiar but such is life).

However if it got to the point where the capital in your house could earn you 5k per month invested eleswhere and you could rent an equivalent house for 3k per month then str would start to make sense wouldn't it? (plus there is the saving on maintainance etc).

I'm selling up (soon) as part of my original plan to sell in my 60's (I invested in my early 30's), not much to do with yields. Selling to rent rarely makes sense, it might work if someone had to sell anyway (i.e. relocating) again though that is down to the individual.

mwpt

michaels wrote: »

However if it got to the point where the capital in your house could earn you 5k per month invested eleswhere and you could rent an equivalent house for 3k per month then str would start to make sense wouldn't it? (plus there is the saving on maintainance etc).

That is effectively what I said in a thread a month or so ago. In this weird market, there exist neighbourhoods in London where if you really wanted to live in a that neighbourhood, it would make more financial sense for you buy another house in a different location to rent out, and rent the house you want to live in.