A demonstration of ludicrous house prices...

CB1979_2

tr3mor wrote: »

You have to remember to take into account the interest that could be earned on the £150k in savings elsewhere.

About £7500 per year.

yep i know that, just pointing out, that just cos a house costs £240k doesn't necessarily mean it'll cost £1k in I/O all depends on the LTV ratio

epz_2

guppy wrote: »

Yes...as I overheard the sales person on a new development say to a potential BTLer recently, "its all about the capital growth" these days :rotfl:

agreed, there are lots of adverts on rightmove up here at the moment with for sale prices and potential rental yeilds, havent seen one yet that would cover the interest lol.

Generali

There are advantages to buying, there are advantages to renting.

As people that can be bothered to follow my 'soap opera-y' posts will know, I've taken a new job with a hedge fund that's meant a pretty dramatic cut in wages but that will (hopefully) make me very rich in a few years time. If I'd gone down the same route as many of my friends and basically sold my soul to the bank manager to buy a house rather than renting I'd never have been able to afford to take it.

Having said that, my house buying friends can have whatever colour walls they want and (more importantly) have security of tenure as long as they can stump up the frightening sums that the bank insists they pay (often IO) each month.

IveSeenTheLight

macaque wrote: »

A yield of less than 3% (after costs) is not decent. It doesn't matter how much they paid for it. If they sold it and put the money into an alternative investment, they could earn better than 5%.

Not necessarily,

If a person bought a 200,000 pound house and paid 40,000 deposit and received a rental income to cover the mortgage, then in 25 years the property is theirs.
Even assuming house prices remain exactly the same for 25 years, then the return from the 40,000 investment is 200,000

If the person put the 40,000 into a 6% gross interest, they would only get around 4.8% net, meaning after 25 years the 40,000 would return approx 130,000 pounds.

The difference is 70,000 pounds.

Even 6% net interest would only return 171,000 after 25 years for a 40,000 investment.

Now, who know of any property at any time which is the same price as it was 25 years earlier

This shows that if you can get the right property in the right area where rental markets are strong that you can make a profit even when rental yield is very low or even 0%.

P.S. I have two BTL's with a rental yield of 6.15% and 9.39% so there are still properties out there which can return positively

Please see below a graph of Rental Yield Figures



More info on BTL and Rental Yields at: -
http://www.buytoletmortgages.co.uk/

A_Nice_Englishman

IveSeenTheLight,

I've done the following figures based on your example.

Property price £200,000, deposit £40,000, mortgage £160,000

Interest rate of 6%

In order to own the property after 25 years you would need a repayment mortgage. Monthly cost £1043

The deposit would have earned £200 per month interest if left in the bank.

Allow £100 per month for overheads - agency fees, void periods, repairs, bad debts etc

Total of the above is £1343 per month.

Can you achieve a monthly rental income of £1343 on a £200,000 property? Not round here.

IveSeenTheLight

A_Nice_Englishman wrote: »

IveSeenTheLight,

I've done the following figures based on your example.

Property price £200,000, deposit £40,000, mortgage £160,000

Interest rate of 6%

In order to own the property after 25 years you would need a repayment mortgage. Monthly cost £1043

The deposit would have earned £200 per month interest if left in the bank.

Allow £100 per month for overheads - agency fees, void periods, repairs, bad debts etc

Total of the above is £1343 per month.

Can you achieve a monthly rental income of £1343 on a £200,000 property? Not round here.

You quote 6% interest rate but that is gross, not nett.
The nett interest would be approx 4.8% (bank retains 20% tax on the interest for Mr B
This means a monthly interest initially of £160 into your account

You have mixed leaving the deposit in a bank and using the deposit with the mortgage to come to your £1343 pm figure, this is not how they would be utilised in the reality

Caping the figures again: -
£40,000 in a bank at 6% gross interest would return approx £130,000 after 25 years
£40,000 deposit in a house purchased at £200,000 and fililng with tenants to cover and for the lifetime of the mortgage would result in you owning a £200,000 property assuming property prices do not increase in the next 25 years.

Minimum difference of £70,000 plus whatever property price increase there is and increased rental income over the 25 years.

I remember reading an article which shows that while property prices do go up and down, the average shows that house prices double every 9 years.
This included period where prices have crashed and goes back approx 100 years of data

I guess I'm fortunate not to have invested around you then, given the rental market would not cover this.
Where I have invested, the rental rate is very strong and I can return the rent to cover the mortgages and a good bit to spare.

It just goes to show that any investments have to be assessed for the market and area they are in.

macaque_2

Some of you are spinning dangerous nonsense. You have convinced yourselves that by some magic you can create a fortune purchasing property and using the income to pay off the capital. That assumes:

House prices will remain strong in medium to long term (see Germany/Japan)
Rents will not go down over time
You will have full occupancy
Tenants will pay their bills and look after the property
You will not be faced with legal costs
No large maintainance bills will be incurred
Interest rates stay low
Tax rules will not change
Red tape will not be introduced
You will be willing to do administration (you can't afford to give large fees to agents)

Right now, rents barely cover the costs and interest let alone paying off capital. If the tide immigration turns, house prices and rents will dive and these 'valuable property portfolios' will turn into massive millstones around people's necks.

One poster on another thread suggested that shares are a risky option. Its worth noting that shares generally have better long term yields than property and offer a much better opportunity to spread risk. It is worth noting, that there is nothing to stop you from buying shares on credit and using the income to cover some of the interest payments.

Property can be a great investment but you cannot ignore basic investment rules. You have to be prepared to take a profit. You should not buy at the wrong price. You have to have compelling reasons to buy a property if the yield does not cover the cost of ownership.

People have become transfixed by property like a rabbit in a cars headlights. They saw eyewatering price rises for some years and are now sitting in the middle of the road waiting for the next light show.

IveSeenTheLight

macaque wrote: »

Right now, rents barely cover the costs and interest let alone paying off capital.

macaque,

you make a lot of sense in your previous post, however I cannot believe that rents barely cover the costs and interest let alone the capital.
It would not be a wise investment if you were losing (paying extra) money towards the BTL to cover the mortgage payments.

Many people on here are comparing the cost to buy now, compared with the rental income for that property and maybe in a lot of area they dont add up, but not all areas are the same. Some areas still have a strong rental market.

Please see below a graph of Rental Yield Figures



More info on BTL and Rental Yields at: -
http://www.buytoletmortgages.co.uk/

Alan_M_2

ts_aly2000 wrote: »

I would like a Porsche 911.

You'd be able to rent that out for more than £1000 a month

A_Nice_Englishman

IveSeenTheLight wrote: »

Caping the figures again: -
£40,000 in a bank at 6% gross interest would return approx £130,000 after 25 years
£40,000 deposit in a house purchased at £200,000 and fililng with tenants to cover and for the lifetime of the mortgage would result in you owning a £200,000 property assuming property prices do not increase in the next 25 years.

Minimum difference of £70,000 plus whatever property price increase there is and increased rental income over the 25 years.

I remember reading an article which shows that while property prices do go up and down, the average shows that house prices double every 9 years.
This included period where prices have crashed and goes back approx 100 years of data

I guess I'm fortunate not to have invested around you then, given the rental market would not cover this.
Where I have invested, the rental rate is very strong and I can return the rent to cover the mortgages and a good bit to spare.

It just goes to show that any investments have to be assessed for the market and area they are in.

Sorry, still can't quite get my head around the figures.

Are you saying that rental income would cover the interest on the mortgage, plus repayment of the capital and the interest foregone on the deposit? In that case, yes the landlord would own a property worth £200K +/- any change in the value after 25 years. If the rental income only covered the interest, he would own the property but have a debt of £160K