Baffling London BTL economics

Cornucopia

Buying BTL in London vs. other areas has been a bet on London HPI for some while - it is priced into the market.

You don't have to go too far outside London to get much better yield.

The other reason for someone to BTL in London at apparently disadvantageous terms is so that they have it to live in at a point in the future, when prices might have otherwise got away from them.

mwpt

wotsthat wrote: »

You've assumed prices will fall by 1.5% in real terms every year for the next 30 years. That doesn't strike me as particularly realistic either.

As per Generali's signature most plans don't survive the first punch in the mouth. What I'm really trying to say is that all of your assumptions are wrong (some for better and some for worse) but the model will improve over time as the future becomes the past.

No, they can't be wrong, because they're assumptions. Unless you can present me with falsifiable evidence then we can both only guess. The variables are there as variables, they are meant to be changed to show how the investment performs under various scenarios. I am not saying that property will flatline for 30 years, I chose the figure for example purposes only. It's a pity that you can't see beyond your "crash troll" mentality and be more constructive or show your own figures. As far as I can tell I'm the only one on this forum sticking my neck out and posting my "workings" like this. Easy target for you I guess.

On top of that, I wasn't even the one who started this thread saying the investment didn't make sense. Why didn't you attack the original posters views?

wotsthat

mwpt wrote: »

No, they can't be wrong, because they're assumptions. Unless you can present me with falsifiable evidence then we can both only guess. The variables are there as variables, they are meant to be changed to show how the investment performs under various scenarios. I am not saying that property will flatline for 30 years, I chose the figure for example purposes only. It's a pity that you can't see beyond your "crash troll" mentality and be more constructive or show your own figures. As far as I can tell I'm the only one on this forum sticking my neck out and posting my "workings" like this. Easy target for you I guess.

On top of that, I wasn't even the one who started this thread saying the investment didn't make sense. Why didn't you attack the original posters views?

You're being too touchy.

I'm saying your assumptions are wrong not because I'm calling you an idiot but because it's impossible for them to be right.

I wouldn't touch the OP's scenario because if, effectively, you need to sub the tenant on top of buying a house and paying the taxes then it looks more like a big punt on house prices. I think that's what the OP suggested.

Your Bristol scenario looks more promising because it's cash flow positive (just) from the off and, say I didn't like being a landlord, I could sell for what I bought for relatively soon and breakeven.

To be honest if it was me I'd point out that as a higher rate taxpayer he might be more content with a 40% day one ROI from a sipp and if he really wanted property exposure he could buy British Land which has a 4% dividend yield.

That's what I'd be more likely to do. A 40% crash in British Land shares paid for pre-tax would be less problematic than a 40% house price crash paid for post tax.

cells

Maybe it was a buy to live

chucknorris

mwpt wrote: »

I use 0.0001% HPI to simulate zero capital growth, because I want to see if the investment performs in it's own right, without requiring to sell to the greater fool.

That approach would work with shares, but the problem (advantage to most, but I know that it can also go wrong) with property is that it can be (and is usually) leveraged, and if it just rises with inflation (which you are ignoring) then that capital gain is further increased, on the actual money invested, due to the gearing.

But even so, I still wouldn't be interested in property as a new investor, so I'm just saying my 2 cents worth, that's all.

westernpromise

I think it was Jacob Rothschild who said that you should leave the last 10% to someone else. If all this chap gets is 10% he's in trouble, especially if the area is already cooling.

chewmylegoff

Was the buyer David Cameron, tax dodger?

chewmylegoff

Perhaps the buyer felt he wouldn't be able to afford to buy post stamp duty changes- you can't borrow the stamp so £30k less to spend on a house means £100k less of mortgage if you need a 30% deposit.

Perhaps the buyer is a foreign investor and won't be impacted by the changes to tax rules.

Perhaps the buyer is a money launderer and doesn't care about losses.

Alternatively it is quite possible they are just stupid.

mwpt

chucknorris wrote: »

That approach would work with shares, but the problem (advantage to most, but I know that it can also go wrong) with property is that it can be (and is usually) leveraged, and if it just rises with inflation (which you are ignoring) then that capital gain is further increased, on the actual money invested, due to the gearing.

But even so, I still wouldn't be interested in property as a new investor, so I'm just saying my 2 cents worth, that's all.

All of that is taken account for in the spreadsheet. The final column, which shows the yield, calculates it off only your initial investment which is the 30% deposit sum plus all fees. And if you copy or duplicate a sheet and play around with HPI, setting it at even say a moderate 1-2% instead of zero, you'll see if makes an enormous difference, as you'd expect when using leverage.

I am somewhat offended that you think I'm stupid

EDIT: And I'm not ignoring inflation. I set the HPI at zero for a reason, to see what happens if nominal prices don't rise for a significant amount of time. And once again, the sheet is editable if you copy the tab and create your own scenario to show your estimates for HPI, etc.

EDIT2: And I wanted to see what happens with nominal prices not rising for a good reason, because the OP said the buyer overpaid and that prices were softening in that area.

chucknorris

mwpt wrote: »

And I'm not ignoring inflation. I set the HPI at zero

So you are ignoring inflation, inflation plays its part, it isn't wise to rely upon it, but it should not be ignored either, it has actually literally made me quite a lot of money.

Edit: How much did your spreadsheet make you in the last tax year, that is the ultimate test, everything else is just !!!!!!!!, I don't mean that nastily, it just happens to be true. My spreadsheets make me money, that is why I spend time on them, time is money.