House prices rising faster than inflation - Guardeeeun

chucknorris

westernpromise wrote: »

I have to say, 2 bedrooms for £430k in Battersea (I think that's where you said these were?) strikes me as very fair. In Maida Vale or Notting Hill, you'd be looking at double that. Location, location, location, I guess, but Battersea's pretty salubrious these days last time I looked.

They are ex-council, but good quality, low rise, in a decent street with Victorian houses and brick (not flammable cladding). But nevertheless they still sell for quite a bit less (probably about £200 to £400k less) than a Victorian conversion flat or so called 'luxury' purpose built. I lived in 3 out of 4 of them myself for quite a few years (which will help with the CGT).

westernpromise

The return and yield alike on my BTL have been OK if not stellar. It has appreciated at 5.75% a year and the yield on equity (rent less letting and finance costs divided by net equity after CGT) is about 4%.

The main reason for keeping it is that my children may need it and the costs of selling and re-buying are so punitive (even ignoring the CGT that a sale would trigger).

westernpromise

Yes, I put £60k into it to buy it in 1999. If you calculated the return of ~£500k equity from that starting point, it comes out at around 12% compound for 19 years. On a cashflow basis, rent after expenses but before tax is about £22k a year.

To earn this I spend £4k a year on the mortgage. Arguably I'm making a 550% return because the gross rent is 4.5x what I spend to earn it. But of course the £4k spend is to fund ownership, which exposes me to capital loss as well as capital gain. So it's not valid to consider annual cashflow in that way other than to be happy that it's positive.

To sell the flat would cost at least £20k and to buy a new one at the same price would cost me another £66k or my daughter £36k. Obviously I am not about to chuck away the thick end of a hundred grand in that way unless there is a really juicy return on offer which right now there isn't.

westernpromise

The £500k is the net equity after CGT. If I sold that's what I'd walk away with.

If I leave it to the daughters as inheritance, there's no stamp duty nor is the CGT ever crystallised.