Return on BTL equity

GreatApe

There really needs to be a pure residential medium geared (50%) REIT
Or a dozen such REITs each one concentrating on one of the UK regions
Maybe something like 50,000 homes each
So many landlords or would be landlords would be better off in such a structure

No 5-15% stamp duty
No lawyers fees
No huge time sink into finding properties or going to view
No financing to deal with it every 2-3 years having to remortgage
Can get in or out instantly
Own inside an ISA or Pension
Efficiently run with maybe in house trades and letting agents
Easy way for pension funds to invest in residential
Potentially lower cost of capital Vs private landlords (dealing with one company rather than 10,000 landlords is less paperwork and overheads for lenders)
Potentially could cut out banks altogether and issue it's own paper for financing

But sadly it doesn't exist
Office REITs exist
Shipping centre REITs exist
The two combined exist
But no pure UK residential REITs

There must be a reason for it not existing
I wonder why? I mean I'd pay a small premium for this just to save legals and time and avoid estate agents (why pay 1.5% to the estate agent + solicitors selling fees when I can sell shares in a REIT for £10 commission) and avoid CGT or income tax in the portion that is inside an ISA or Pension

Landlords own >£1 trillion in BTL assets and no one in the capital of capital has figured out a more efficient way to do this???

GreatApe

GreatApe wrote: »

There really needs to be a pure residential medium geared (50%) REIT
Or a dozen such REITs each one concentrating on one of the UK regions
Maybe something like 50,000 homes each
So many landlords or would be landlords would be better off in such a structure

No 5-15% stamp duty
No lawyers fees
No huge time sink into finding properties or going to view
No financing to deal with it every 2-3 years having to remortgage
Can get in or out instantly
Own inside an ISA or Pension
Efficiently run with maybe in house trades and letting agents
Easy way for pension funds to invest in residential
Potentially lower cost of capital Vs private landlords (dealing with one company rather than 10,000 landlords is less paperwork and overheads for lenders)
Potentially could cut out banks altogether and issue it's own paper for financing

But sadly it doesn't exist
Office REITs exist
Shipping centre REITs exist
The two combined exist
But no pure UK residential REITs

There must be a reason for it not existing
I wonder why? I mean I'd pay a small premium for this just to save legals and time and avoid estate agents (why pay 1.5% to the estate agent + solicitors selling fees when I can sell shares in a REIT for £10 commission) and avoid CGT or income tax in the portion that is inside an ISA or Pension

Landlords own >£1 trillion in BTL assets and no one in the capital of capital has figured out a more efficient way to do this???

Also in a rising market it can buy it's own shares to maintain 50% LTV rather than go out and buy costly transaction properties

£10 billion in properties owned
£5 billion debt

Prices go up 15% in a given year
£11.5 billion in properties owned
£5 billion debt
Take on £750 million more debt and buy back your own shares £5.75 billion debt so maintaining 50% LTV.

Much quick easier and more efficient than a landlord who to achieve the same compounding has to go out MEW and buy another


If I had £10 billion I'd do just this
Borrow another £10 billion
Buy £20 billion if London property (about 25,000 homes)
List it as a REIT on the LSE would be in the FTSE 100
Sell my stake get my £10 billion back out
But leave behind a great useful financial instrument that will last a hundred+ years

Sailtheworld

Thrugelmir wrote: »

A rise in interest rates would diminish your income very quickly.

Since you've been pointing this out we've enjoyed 10 years of rock bottom mortgage rates. In fact I could go out today and fix for the next 5 years for less than 2% with no fees. In 2024 that would mean, 15 years after you first pointed out the potential for rising rates and the danger of people thinking they were normal, I would've averaged a touch under 2% for the period.

Less interest paid means more money invested and returns have been great over the last 10 years.

Have you heard of the little boy that cried wolf?

Sailtheworld

GreatApe wrote: »

Landlords own >£1 trillion in BTL assets and no one in the capital of capital has figured out a more efficient way to do this???

According to the OP's figures around 30% of his rental income ends up in his back pocket.

Maybe the smart money is working hard to ensure the status quo continues i.e. they take 70% and he takes most of the risk?

Thrugelmir

Sailtheworld wrote: »

Since you've been pointing this out we've enjoyed 10 years of rock bottom mortgage rates. In fact I could go out today and fix for the next 5 years for less than 2% with no fees.

For a BTL mortgage?..

Rock bottom interest rates are in place for a very good reason. Only the tip of an iceberg is visible above the water. Always factor in what if scenarios. As nothing lasts forever. Being smug has caught many an investor off guard.

lisyloo

Sailtheworld wrote: »

According to the OP's figures around 30% of his rental income ends up in his back pocket.

Maybe the smart money is working hard to ensure the status quo continues i.e. they take 70% and he takes most of the risk?

Unfortunately there isn’t much negotiating with HMRC.
Be glad that someone is contributing towards our NHS, care homes and benefits system.

The OP would face tax on most investments once they’ve used their various allowances.

I’m sure if there was an easy way to avoid it then the OP would have done it already.

westernpromise

There is no real scope to reduce the costs. As lisyloo points out, HMRC takes 50% like it or not. The mortgage at 1.29% is impossible to improve and I have no interest in dispensing with the agents because I value my time at far more than what I would save per hour.

It's not really about 9k a year here or there. It's about understanding what it costs me to hold on to property.

Sailtheworld

Thrugelmir wrote: »

For a BTL mortgage?..

Yes.

Thrugelmir wrote: »

Rock bottom interest rates are in place for a very good reason. Only the tip of an iceberg is visible above the water. Always factor in what if scenarios. As nothing lasts forever. Being smug has caught many an investor off guard.

Every sentence of that is correct but I could've easily paid attention to your parables of doom 10 years ago and squirted away a load of money on the mortgage capital and I'd be somewhat poorer for it today.

What if mortgage rates rise such that they're in excess of anticipated investment returns because of (insert parable of doom here). How about I pay off the mortgage with the profit I've made by not listening to you. Does that count as factoring a what if scenario?

Don't tell me - people have come unstuck counting their chickens or something.

Sailtheworld

lisyloo wrote: »

Unfortunately there isn’t much negotiating with HMRC.
Be glad that someone is contributing towards our NHS, care homes and benefits system.

I’m sure if there was an easy way to avoid it then the OP would have done it already.

The OP puts up the capital, takes the risks and 50% of his profit goes into the tax pot. I'm not some sort of ingrate - I wish he'd got ten more.

lisyloo wrote: »

The OP would face tax on most investments once they’ve used their various allowances.

I'm sure of that but it brings me back to what I said earlier. If the OP has so much money that paying 70% tax, charges and expenses is as efficient as they can get it's time to think about giving it away - that's would be massively more tax efficient than keeping a BTL.

Sailtheworld

westernpromise wrote: »

There is no real scope to reduce the costs. As lisyloo points out, HMRC takes 50% like it or not. The mortgage at 1.29% is impossible to improve and I have no interest in dispensing with the agents because I value my time at far more than what I would save per hour.

It's not really about 9k a year here or there. It's about understanding what it costs me to hold on to property.

If I had a magic wand and got rid of CGT would you sell it?

I reckon you'd be heading down the high street throwing women and children behind you to get to the estate agents.