How does BTL stack up?

Simon_Brown_2

Crashy_Time wrote: »

Many will just move into bankruptcy IMO, and the banks won`t lend for the things you mentioned to Average Joe like they did on BTL. BTL lending was a deliberate policy by the banks to get existing homeowners into even more mortgage debt.

Good point, I hadn't considered the lending aspect.
My understanding is that BTL mortgage lending started when the govt changed the tenancy laws to the AST, which made eviction easier. This made lenders more confident they could repossess if required.

Pre-AST days, BTL was less common. But back then employment was more secure and pensions much better. So it really was a different country.

Farmland prices have been pushed up by govt IHT rules, which encourages wealthy individuals to buy farmland. Yields have been pushed down to less than 1pc.
Obviously the govt could change this - but unlikely they'll want to upset their wealthy friends / donors.

So I'm not sure what will happen in the future. What will replace BTL? Will those investors turn to bonds and shares?

My guess is the cash-rich may go invest into commercial property (without mortgages).

But I don't think anyone really knows.

However, very few of the BTL landlords I know would ever consider buying shares. They just have a completely different mindset and comfort zone.

Simon_Brown_2

lisyloo wrote: »

I don't think it stacks up now buying at todays prices with todays tax regime (it can still stack up now for properties bought some time ago).


The propspects for capital gains and the tax regime and the bureacracy involved have all changed.


The people you are talking to are referring to either past experiences or current experiences but at past purchase prices.


It's very hard to retire both early and comfortably these days and requires a lot of planning.

You are correct.
But you haven't mentioned rental income.
Current yield is important, not just capital gain.

For example. If I bought a house for £100k and the rental income was £5k pa - then I bought at a gross yield of 5pc.

If the house has now risen to £200k value, but my rental income still £5k pa, then my gross yield is now 2.5pc.

So if another asset (eg bonds, shares etc) is currently yielding 5pc - why would I keep the house? Why not sell and put that £200k into the higher yielding asset?

Obviously this is overly simplistic - not taking into account transactions costs, personal preferences and goodwill etc.

But the current yield of other asset classes must surely affect the price of BTL properties.

For example, why would a new investor buy that house for £200k, if it was only going to yield them 2.5pc?

Simon_Brown_2

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.

Fashion, by definition, changes.

AdrianC

Simon_Brown wrote: »

You are correct.
But you haven't mentioned rental income.
Current yield is important, not just capital gain.

I'd even lose the "just" from that, simply because it's not predictable. Do the sums on yield, and regard any capital gain above inflation as a bonus.

lisyloo

But you haven't mentioned rental income.

There are a lot of things to consider, but personally I would not directly compare the return of an asset which is undiversified, demanding and requires a lot of work, with a highly diversified and undemanding asset (for example a diversified portfolio of assets).


I'm probably biased because I don't fancy the tasks involved, but my share portfolio doesn't call me at 4a.m saying there's a leak :-)


I agree with your point that one must compare with other opportunities.
I recently chose equities over property because I can get an 45.8% uplift into my SIPP via salary sacrifice (20% income, 12% NI and 13.8% employers NI).
The other opportunities are sometimes individual e.g. as in this case an employer pension.


But I would still point out the work, liabilities (people's lives) and risk involved in buying a single property.


One has to comapre ALL the factors I agree.

Simon_Brown_2

chucknorris wrote: »

IMO it is best to hold investment property when you are younger and dispose of it as you approach (or shortly after) retirement for a number of reasons:

- Property is hassle, I want a more relaxed lifestyle when I am older

- Property can be tying, I want to be free to go on long/lots of holidays when I am retired

t

The flip-side of this is that working people may have less time to spare than the retired.
The working age group also tend to have less relevant experience and contacts than the older generation, wen it comes to maintenance and repairs etc.

Obviously a generalisation, but in my experience the residential landlords that do best (and seem most suited to being a landlord) are those in their 50s. They know the local tradesmen, local area, etc.

happyandcontented

'Accidental Landlord' by inheritance maybe? It could have happened through a relative dying and the family member renting it out until they had decided what to do with it long term.

Simon_Brown_2

lisyloo wrote: »

There are a lot of things to consider, but personally I would not directly compare the return of an asset which is undiversified, demanding and requires a lot of work, with a highly diversified and undemanding asset (for example a diversified portfolio of assets).


I'm probably biased because I don't fancy the tasks involved, but my share portfolio doesn't call me at 4a.m saying there's a leak :-)


I agree with your point that one must compare with other opportunities.
I recently chose equities over property because I can get an 45.8% uplift into my SIPP via salary sacrifice (20% income, 12% NI and 13.8% employers NI).
The other opportunities are sometimes individual e.g. as in this case an employer pension.


But I would still point out the work, liabilities (people's lives) and risk involved in buying a single property.


One has to comapre ALL the factors I agree.

I agree and also prefer equities and bonds to becoming a landlord.

I do know quite a few residential landlords and the most successful are unlikely to spend much time on a computer. They tend to be more practical type people.

I don't think so many of the next generation of people (eg in their early 20s now) will become direct ownership residential landlords. The political, tax and regulatory landscape has moved against it. But also the skill set and the comfort zone of the potential investors is not the same. Good landlords prefer fixing a leaking pipe, whilst the new generation are all into iPhone apps etc. And that kind of thing just will not help you as a landlord.

Simon_Brown_2

AdrianC wrote: »

I'd even lose the "just" from that, simply because it's not predictable. Do the sums on yield, and regard any capital gain above inflation as a bonus.

Yes, the 'Monopoly board game' approach.

(Also ignores capital loss...!)

AdrianC

happyandcontented wrote: »

'Accidental Landlord' by inheritance maybe? It could have happened through a relative dying and the family member renting it out until they had decided what to do with it long term.

Even in that situation, renting it is still a conscious choice. They have to find a tenant, sort a tenancy, do all the referencing, protect the deposit etc (whether themselves or through an agent they've hired).

"Accidental landlord" is usually a euphemism for "amateurish landlord trying to make excuses".