How does BTL stack up?

Mr_Curious

Hi Guys,


Just a discussion point really. I have been speaking to a number of people who have recently retired. It turns out that, in their opinion/experience the key to early retirement is property/BTL.


Is that still the case? I appreciate that the value of a house may increase over time and rent should exceed costs but does it all add up?


Tax? Maintenance? Voids? Bad tenants? Regulatory changes?


Seems like planning for retirement the hard way... unless the property goes crazy like London in the past.


Any thoughts or experiences?


(Just to be clear this isn't a point to say one way is the only way or cause huge division and name calling. Just a talking point)


Mr_C

AnotherJoe

I'd nearly agree, I'd just change the tense,it was if not key, a valid strategy though still probabiy not as good as shares, especially since the advent of SIPPs and ISAs yiu can shelter them from tax. . But IMO that BTL boats long sailed now.
Additional SDLT, taxes, restrictions, new laws coming in, make it a very different proposition to what it was perhaps 20-30 years ago.
These people no doubt made out very well but haven't got the imagination or perhaps knowledge to look forward to or consider the very different tax and regulatory regime under which landlords now operate.

steampowered

BTL would have been an excellent idea 20-30 years ago, with the benefit of a crystal ball, as house prices rose have had a bull run.

These days it seems extremely unlikely that house prices would increase again to quite the same extent.

BTL could still form a part of retirement planning for some people, if they are happy to live with the taxes, but it is not a good idea and not tax efficient to rely only on BTL.

Also - if the people you talked to relied on BTL - they wouldn't know any different anyway!

AnotherJoe

steampowered wrote: »

BTL would have been an excellent idea 20-30 years ago, with the benefit of a crystal ball, as house prices rose have had a bull run.

These days it seems extremely unlikely that house prices would increase again to quite the same extent.

BTL could still form a part of retirement planning for some people, if they are happy to live with the taxes, but it is not a good idea and not tax efficient to rely only on BTL.
Also - if the people you talked to relied on BTL - they wouldn't know any different anyway!

Great point !

Cakeguts

It works better if you buy good nearly new modern properties in fashionable areas for cash. Fashionable areas don't have to be London or anywhere in the South East they just have to be somewhere that people aspire to live. Then you get long tenancies from good tenants.

Crashy_Time

Cakeguts wrote: »

It works better if you buy good nearly new modern properties in fashionable areas for cash. Fashionable areas don't have to be London or anywhere in the South East they just have to be somewhere that people aspire to live. Then you get long tenancies from good tenants.

That doesn`t solve the tax problem though, until there is a proper price correction BTL and second homes are just too good a target for vote hungry political parties to ignore.

AdrianC

Mr_Curious wrote: »

I have been speaking to a number of people who have recently retired. It turns out that, in their opinion/experience the key to early retirement is property/BTL.

For them, it may well have been.

Is that still the case? I appreciate that the value of a house may increase over time and rent should exceed costs but does it all add up?

Tax? Maintenance? Voids? Bad tenants? Regulatory changes?

You've got to look at it from two directions.

1. Ongoing costs/income.
Incomings - rent minus voids.
Outgoings - mortgage, maintenance, repairs, fees, tax, etcetera...

2. Capital growth.
...and don't forget SDLT and CGT.

You've got to draw up your business plan for 1 delivering a decent yield, on sensible assumptions, and hope that 2 at least breaks even. More often than not, unless you're forced into selling at the wrong time, then it will do. But how would it fare against other investments? Residential property letting is massively illiquid, and (for mere mortals) very hard to get any diversification.

Buying badly will, of course, affect both 1 and 2. By "badly", I mean overpriced or the wrong property - they're easy to avoid, with a modicum of clue. Buying at the wrong time in the price cycle is less easy to predict and avoid, but at least if you worked the yield correctly and have the freedom to pick the time to sell, you can at least mitigate that, even if it does throw your timings out from the original plan.

Seems like planning for retirement the hard way... unless the property goes crazy like London in the past.

Indeed. And when those who got lucky don't realise they got lucky, then they recommend it, on the basis their luck is predictable and repeatable. It isn't.

eamon

I agree that if you have to fund your BTL with debt then that market has largely gone. When I sold my last house it was bought by a consortium of retired people (one of many that they owned). At the time I didn't understand how they would make a return so I asked their public face how they could do it and his reply was interest only mortages and rising property prices. How this model fared after 2008 I have no idea.

Crashy_Time

eamon wrote: »

I agree that if you have to fund your BTL with debt then that market has largely gone. When I sold my last house it was bought by a consortium of retired people (one of many that they owned). At the time I didn't understand how they would make a return so I asked their public face how they could do it and his reply was interest only mortages and rising property prices. How this model fared after 2008 I have no idea.

It fared OK until recently and the tax changes, but interest rates are still rock bottom, people will trundle along a while longer even with big debt maybe? Also a lot of people really really believe in HPI, it is deeply engrained, and for this reason many landlords have probably already missed their sell point. I also think there will be a drop in demand after Brexit, because FOM in it`s recent form just isn`t going to fly any more, but landlords will struggle to sell on their BTL`s without sizeable price drops IMO.

dimbo61

So many variables in BTL and the housing rental market in general.
What kind of property do you buy ?
Where do you buy ?
What kind of tenant are you looking for ?
Yield or Capital appreciation ?
Hands on management or paying a Lettings agents ?

littlepixel72

Tax? Maintenance? Voids? Bad tenants? Regulatory changes?

Speaking as a recent accidental landlord, it doesn't stack up. We haven't had bad tenants or any voids, so we're lucky in that respect.

But now our interest only mortgage payments are going up (and we don't earn enough to remortgage at a better rate). We can't afford to serve the tenants notice and have the house standing empty while we market it. Through wear and tear and the market falling, house is possibly worth 20% less than it was 2 years ago. We'd love to sell it, but not confident it would sell except at a rockbottom price. It's not attractive to investors as yield is low or to potential owner occupiers as it's too expensive!

As for us, we're just about maintaining in our new place, but forget holidays and making improvements, let alone saving or overpaying on the mortgage. The prospect of being able to use the BTL as a pension isn't even certain because anything could change. Hoping to ride out the current stagnation and wait for the market to pick up again at some point, but to get out of our current situation, we'll probably need to sell our current home and move back into a place we were happy to leave to avoid accruing more debt.

I won't mention tax, except to say it definitely adds to the overall picture of BTL not stacking up.

I would make a different choice now. In hindsight, I would have put it on the market in 2016 without trying to achieve top price. That would still have left us better off than where we are now, and with freedom intact.

We live and learn ;-).