Buy to let vs Funds 3.3%

phb71

Hi

I have the opportunity to buy to let a property with a low borrowing rate (1.3%) and £0 initial investment on a 15 years bank loan. The net yield (after tax) on the property is about 2.5% through rent income. The other thing worth noting is that the real estate area of this property isn't increasing in value since 2009 - the price per square meter doesn't seem to move up or down.

Despite the rent, I would still need to pay the bank £550/month from my own pocket for the mortgage. I've calculated that, instead of buying the property, if I invest £550/month in the market for 15 years and compound the interest, I would simply need an annual return of 3.3% to have the value equivalent of the house after 15 years.

Surely 3.3% doesn't seem unachievable, especially for index tracker funds over time, and it removes the pain and headaches of managing a buy-to-let property, especially in an area who's not gaining any value in recent years.

Thoughts?

AnotherJoe

phb71 wrote: »

Hi

I have the opportunity to buy to let a property with a low borrowing rate (1.3%) and £0 initial investment on a 15 years bank loan. The net yield (after tax) on the property is about 2.5% through rent income. The other thing worth noting is that the real estate area of this property isn't increasing in value since 2009 - the price per square meter doesn't seem to move up or down.

Despite the rent, I would still need to pay the bank £550/month from my own pocket for the mortgage. I've calculated that, instead of buying the property, if I invest £550/month in the market for 15 years and compound the interest, I would simply need an annual return of 3.3% to have the value equivalent of the house after 15 years.

Surely 3.3% doesn't seem unachievable, especially for index tracker funds over time, and it removes the pain and headaches of managing a buy-to-let property, especially in an area who's not gaining any value in recent years.

Thoughts?

Isn't that a contradiction?
There's £0 initial investment but you are taking on a mortgage ??????? Isnt that the investment?

Having been a small time landlord once cant say I'd ever want to do it again, all that hassle for as you say similar returns to long term stock market investment.

Its bad enough owning one house and needing to keep it in order, why double the load?

Also, unless you are putting away the maximum in your pension already, those returns will be magnified by tax relief if you put that into a pension instead of an ISA. £550 costs you £440 on BRT and £330 on HRT.

AdrianC

phb71 wrote: »

I have the opportunity to buy to let a property with a low borrowing rate (1.3%) and £0 initial investment on a 15 years bank loan.

<raises eyebrows>
This sounds so unlikely as to be almost certainly a scam. Tell us more.

phb71

I'm UK resident but french: lots of banks in France offers £0 initial investment on loans - it's much more common in France vs the UK which I found is much harder/impossible to get. Also this buy-to-let is in France so I can't even apply it on UK tax relief. I'm not really asking if this loan is a scam or not, simply would like an opinion on the investment .

Shakin_Steve

I'm sure most landlords would tell you that a buy to let involves much more than purchasing and taking the yield. What about repairs and insurance costs? Who would manage the property, you (from a distance), or someone else? Would that be another expense? A 2.5% yield could easily be swallowed up by unforeseen expenses.

Shakin_Steve

Also, is there a sitting tenant or would you have to find one?

AnotherJoe

phb71 wrote: »

Lots of banks in France offers £0 initial investment on loans .

Can you explain what that means please, I don't understand. If you are committing to a mortgage for 15 years surely that's your investment. Are you just referring to no need for a deposit? Or something else?

phb71 wrote: »

I'm not really asking if this loan is a scam or not, simply would like an opinion on the investment .

Even worse if you'd be a landlord in France. More hassle and more cost due to the distance meaning most things would need to go through an agent with additional costs. Give it a miss.

AdrianC

phb71 wrote: »

I'm UK resident but french: lots of banks in France offers £0 initial investment on loans - it's much more common in France vs the UK which I found is much harder/impossible to get. Also this buy-to-let is in France so I can't even apply it on UK tax relief. I'm not really asking if this loan is a scam or not, simply would like an opinion on the investment .

Ah. You probably want to ask a forum that knows about French property, then.

Pixie5740

phb71 wrote: »

I'm not really asking if this loan is a scam or not, simply would like an opinion on the investment .

Then perhaps you'd be better posting on the Savings & Investments board.

booksurr

phb71 wrote: »

I'm UK resident but french: lots of banks in France offers £0 initial investment on loans - it's much more common in France vs the UK which I found is much harder/impossible to get. Also this buy-to-let is in France so I can't even apply it on UK tax relief.

so you are UK resident and thus liable to UK income tax on your rental profit. A taxable profit figure worked out under UK tax rules where interest is allowed.

You will also of course be liable for whatever property/income related taxes apply in France and you can claim that as a credit against your UK liability depending on the terms of the UK/France tax treaty
https://www.gov.uk/government/publications/france-tax-treaties

tax questions best asked on the cutting tax board
http://forums.moneysavingexpert.com/forumdisplay.php?f=22

phb71 wrote: »

I'm not really asking if this loan is a scam or not, simply would like an opinion on the investment .

so you need to ask for investment opinions on the savings and investment board bearing in mind no one can legally give you investment advice as they are not appointed advisors with the legal power to do so, thus what posters on there say is mere opinion (and opinionated!)
http://forums.moneysavingexpert.com/forumdisplay.php?f=17

phb71

The yield calculated includes insurance cost and some budget set aside for repairs every year so it's close to a net yield (post tax/insurance/repair). The management of the property is done by an agency who belongs to someone in my family so no costs to find tenants/keep an eye on the property.
Yes, when I say £0 initial investment I meant no need for an initial deposit, sorry for the confusion.

The fact that I don't need to bring any cash upfront and having it managed by a family member seems quite interesting but I'm still skeptical if this is a good investment vs long-term investing in the market.