Is buy to let still worth it?

MyOnlyPost

lisyloo wrote: »

Gross generalisation.
The gross return on the flat I live in is 3.9%.
I would expect it to be much better outside central London, so those figures are a massive generalisation.

How are they a generalisation? As with any investment you choose what and where to invest. Everyone is capable of achieving this yield if they choose the right property in the right location, it doesn't automatically follow that people make those choices though.

It's no different to saying you can make 12% when investing in P2P. Just because Ratesetter and Zopa don't offer it doesn't mean that rate isn't open to everyone.

You do realize that 85% of the population don't live in London I asume?

Lloyd90

Conrad wrote: »

I only buy if there is a very healthy monthly profit after mortgage and other costs such as service charge. Aside from investing in ISA's you're going to pay tax on income (pension income is taxable), so whilst the tax increases on property are a concern, rents will rise to allow for them. Stamp duty is a pain, but hey ho, any business investment involves costs, so nothing new there..

What would be considered a healthy monthly profit?

Looking to spend say £75k including deposit and expenses, looking around Bristol.

Possible HMO.

chucknorris

MyOnlyPost wrote: »

I think this is the other significant factor, location. BTL in London I would imagine is going to be much harder for new entrants (and maybe existing landlords) due to property prices and the rental ceiling. In areas of the country where property is still relatively affordable it can still be a lucrative proposition.

As for the graphs, what I take from them is that if you can time the market then you can make significant gains in the FTSE but time it wrong (1999/2000) and you can take a considerable hit on your investment for a long time. I was lucky enough to take my first monthly investment in the markets the week before 9/11 so I was buying into an already falling market that then fell further. Had I bought in 2 years eralier it would be a very different story

House prices have lagged behind the market most of the time it's true, but at very few points would you have taken a loss if you had to sell and ultimately a house will never be worth nothing, unlike some what were once premium shares. And then you have the annual yield of course.

London is my market, that is why my response is London focused, it may well be that outside of London the story is different, but that has no impact on me. Past performance doesn't necessarily repeat itself, property has been great for us, there is no doubt about that, we would not have made the same wealth from shares. But I invested back in the early 90's, and the circumstances are very different now. If I was younger I probably would invest in one investment property, for the sake of portfolio diversity, but I definitely wouldn't do what I did back in the early 90's, and go 'all in' on property. I was very comfortable about doing that back then, but I wouldn't feel the same way about it now. What I feel is different now is that:

Generally:
- London prices are much higher now, and we are also in an extremely low interest environment, so I don't really see how London house prices can significantly out preform inflation going forward.

- The tax system has moved against property, while shares are treated much more favourably.

- The increased stamp duty and loss of the wear and tear allowance has reduced profitability.


Specifically to me (so probably of not much interest to others):

- Property is a long term investment and I am 60 next year.

- I am already going to struggle to spend the existing equity before I die, so there really isn't any point in taking on more hassle and risk for potential profit that can't be spent. Also if I want to spend my current equity I really have to start selling now (which I am).

economic

agree with Chuck on all points. however I personally did not take his advice on keeping my first property when buy my second and instead sold. reason being a 4% yield for an area where tenants are not going to be great and not staying put for long term is not great.

economic

also I got a very good price for the area so decided to sell. it took 9 months to get a single offer and only because of the btl stamp stampede in early 2016. in a normal market if I wanted to sell quick it would have been tough so took my chance now (I was lucky).

michaels

westernpromise wrote: »

The blue line is above the red line at almost every point along that graph.

Suppose we rebase to 1999 and invest 100k and compare the lines.....

caronoel

Considering buying another one in my wife's name soon.

She is a 20% taxpayer, while i am 45%. We are considering something in one of the local university towns that is also in the catchment area of a big hospital. Gross yield is about 7%, so it's still attractive on that basis.

Zxcv_Bnm

michaels wrote: »

Suppose we rebase to 1999 and invest 100k and compare the lines.....

The lines should be different because the risk is different. Return alone means 0, it's all about whether the return you're getting is worth the risk you're taking.

Hence the popular metaphor about picking up pennies from in front of a steam roller.

GreatApe

chucknorris wrote: »

My initial reaction to your graph is that it demonstrates the point that shares are a better investment, over the long run they performed similarly for gross returns (ignoring gearing of course), but the tax system massively favours shares:

It is not a good comparison graph, for a start the FTSE line looks like the price without looking at any dividends returned or reinvested. Likewise the property graph does not look at any net rental income and both would have to be looked at from the lense of a high efficient tax plan

But most importantly such graphs are very misleading as the exact base to 100 date will make the graph look completely different. It would be better to look at the performance of said graph if say one years average earnings (for that year) was invested into each investment at the average annual price for that investment and any net dividend/rentals were reinvested.

If anyone has that graph I would like to see it.

chucknorris

GreatApe wrote: »

It is not a good comparison graph, for a start the FTSE line looks like the price without looking at any dividends returned or reinvested. Likewise the property graph does not look at any net rental income and both would have to be looked at from the lense of a high efficient tax plan

But most importantly such graphs are very misleading as the exact base to 100 date will make the graph look completely different. It would be better to look at the performance of said graph if say one years average earnings (for that year) was invested into each investment at the average annual price for that investment and any net dividend/rentals were reinvested.

If anyone has that graph I would like to see it.

I know, but my comments are based mainly on my own analysis and thoughts of investment property (post tax and stamp duty changes) v shares. As you can probably imagine, I didn't just wake up one morning and thought that it might be a good idea to start selling (virtually) all my investment property.

At the moment the first flat that I am selling means that I am forgoing a yield of 5.9% on the released equity, I don't imagine for one minute that I will make that on shares, but balanced with lifestyle, increased phasing of the tax changes, for me the time is right to sell.