Baffling London BTL economics

mwpt

cells wrote: »

why not do the same to owners like yourself?

Why not have a bank debt levy. A flat 1% on all debt/mortgages/credits from banks.

Debt is bad so mwpt should have to pay more on his mortgage

its a system which actually encourages debt rather than equity. I can see why he'd want to reduce that incentive....

I don't regard leveraged property rentiering as a high productivity activity, and it has several negative consequences (in my opinion) and think the investment would be better elsewhere. Governments disincentivise all sorts of activities and I'm glad they're making a small step to do so against leveraged BTL.

Conrad

westernpromise wrote: »

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.

Trouble is I saw that very line given 2 and 3 years ago about London commercial property, which is now soaring in value. Who knows when the last 10% is due?


I think you guys on here are overly sophisticated, in a purely technical sense, but out in the real world, lots of very successful people just get on an invest in property, they don't sit around with spread sheets and graphs. 25 years from now you can be pretty sure these people will have made huge capital gains.


Over analysing things where property is concerned is almost certainly poor allocation of time and effort. In fact it's the easy thing to do, as it has the promise of gifting you mental comfort, I used to do it myself in great detail, but in the end it's all pretty much superfluous as long as you make reasonably sound judgments

All this spread sheet stuff reminds me of the world of martial arts, in which I'm immersed.


Essentially you get 2 types of 'fighter', one of which is far more effective and grounded in reality;


1) Those that do non / light contact, masses of theory, standing about talking about the intricacies of moves, practicing with complaint partners, endless theorising, hitting pads that don't hit back


2) Those that choose full contact, where full on sparring and fight contests largely hone the skill. In other words those that get stuck in, not those with masses of theory and charts. This second lot are the ones that become the good fighters.

padington

westernpromise wrote: »

London prices have, so far as I can see, flatlined for a year or so, and actually declined in the higher price brackets.

Period terraced houses in woodgreen are firmly in double digit growth still.

It depends where and what you buy.

economic

just reading through this thread and for what its worth i strongly believe BTL should be looked at purely from a cashflow perspective. ie enough rental income/yield to make it worthwhile. i would only ever consider BTL investment in a good area (that holds its capital value more) for 6-7% yeild minimum and in a more dodgy area 10% say.

as for the guy who bought the BTL investment i imagine it was either emotional or he plans to use it as residential in the future. having looked for properties myself i do know in london in the good areas its very hard to find the right property that ticks the boxes so he may have overpaid just to secure it as he may have found it difficult to find something waiting ages for the right one to come up. this still happens even with london prices on average flat lining now.

Cornucopia

cells wrote: »

The tax changes change a lot.

Imagine buying a £500,000 Buy to let and selling it for £500,000 in 10 years time. That would be a terrible investment because you have about £40k lost in the stamp duty the solicitors and the sales costs. The post tax net rental in those 10 years has to cover that £40k which it might not do. You then have to account for the huge amount of time you spend on the investment rather than buying say shares in British Land and forgetting about them

Personally I dont think I would invest now if my time frame was less than 15 years. Definitely flipping is a no go buying and selling in two years time. People can profit from it still but its much more a gamble and you would well lose from it. In the above example if prices stayed the same then buying and selling in two years would see a ~£40k loss

This seems ridiculously unrealistic.

More realistic on the £325,000 house I mentioned previously is this:-

£12,000 rental profit pa. over 10 years = £120,000
3% HPI pa compounded over 10 years = £111,772
Total = £231,772

Not sure where the £40k tax comes from. Stamp Duty on the old rules would have been £9,750, and under the new BTL rules, £19,500.

In my case, I already owned the property, so no new SDLT. The property I bought to move in to was £0 SDLT. You have to plan these things.

cells

Cornucopia wrote: »

This seems ridiculously unrealistic.

More realistic on the £325,000 house I mentioned previously is this:-

£12,000 rental profit pa. over 10 years = £120,000
3% HPI pa compounded over 10 years = £111,772
Total = £231,772

Not sure where the £40k tax comes from. Stamp Duty on the old rules would have been £9,750, and under the new BTL rules, £19,500.

In my case, I already owned the property, so no new SDLT. The property I bought to move in to was £0 SDLT. You have to plan these things.

The £120k profit you speak of needs 20% or 40% or 45% knocked off to give you post tax profit

The capital gains, again is taxed at 28%

If you have a mortgage the interest is effectively taxed too


Using safe assumptions, eg prices/rents go up by wage inflation the break even is a few years out.

Cornucopia

I don't pay income tax. My rental profit fits into my personal allowance. I appreciate that that is unusual.

More generally, I think we're starting to get to the heart of the matter, which is that BTL has the characteristic of being leveraged, but subject to somewhat greater taxation than has been the case, whereas shares are unleveraged, but have some new tax concessions.

Swings and roundabouts. Especially if you find yourself with spare property.

cells

No idea if your still working on the sheets mwpt but Further small errors in the sheets. NPV for cash is incorrect.

Needs to be in this format
=(B$3+B$16+B$22)*((1+M$1)^D3)/((1+B$19)^D3)
Currently
=(B$3+B$16+B$22)*((1+M$1)^D3)*((1-B$19)^D3)

Same sort of mistake on the calc NPV for the property

cells

Cornucopia wrote: »

I don't pay income tax. My rental profit fits into my personal allowance. I appreciate that that is unusual.

More generally, I think we're starting to get to the heart of the matter, which is that BTL has the characteristic of being leveraged, but subject to somewhat greater taxation than has been the case, whereas shares are unleveraged, but have some new tax concessions.

Swings and roundabouts. Especially if you find yourself with spare property.

most shares are in business with some level of debt so they are leveraged too

westernpromise

Conrad wrote: »

Trouble is I saw that very line given 2 and 3 years ago about London commercial property, which is now soaring in value.

Right, but the point I am making is that we are now seeing London static or falling. Against that background it's likelier that we're now into last 10% territory.