Buy to let advice - would you go ahead in the current market?

lypsey

Hearts , you say "Do you really believe this hysterical nonsense? or do you just say it for effect. If its the latter fair enough but if its the former you are a deeply dilusioned indiviual."

I never say anything just for effect , I really believe it will happen
Take a look at this
http://www.in2perspective.com/nr/stats/house-price-to-earnings-ratio.jsp
Unfortunatley ths website has finished and the figures are a little out of date, but if it were current it would be way higher. If you look back to 1955 you can see there has been 3 peaks but know you can see a massive current peak. I think that my 3 year old daughter could tell you what is going to happen. There is going to be a return to the average and this will not be done by wage inflation, it has to come from a housing crash

Look at the facts , BTL is effectively finished, prices are too high , if Dozergirl says " I'm paying £69,000. Market rent is £500" , then good luck to her but in my mind she is getting just over 8% yield gross , but if she pays house insuarnce of 300 quid , or the house needs painting for 250 quid , or the plumber comes out twice a year at 250 and then she has 2 months vacancy , her yield comes down to about 6% gross , if you pay capital gains tax then whats the point. This of course is on the upside . If houses go down 10% next year it is a totally suicidal investment. I believe she is lucky to be making any profit. Why gambol when the bank is paying 6% plus

If you also look at the BoE statement regarding inflation (oil at 90 plus dollars a barrel and food on the up, also the FT said yesterday gas prices would rise 17% next year) what do you think is going to happen . In theory the bank committy don't give a monkies about the housing market , their remit is inflation. If it goes up significantly IR's won't come down

Your theory about stagnant prices is wrong , this has never happened
http://www.in2perspective.com/nr/stats/annual-house-price-inflation-nationwide-.jsp

One last thing , I have sold my house and now rent a 700K house for 900 quid a month , in the middle of the country side . The house I sold a while back will be 50% of what it is today , I am sure of that

Innys

As ever, it's all about timing.

If you ask current BTL landlords whether they would buy another property today which starts off losing £180 quid a month, I think most would respectfully decline that offer.

Having said that, unless you are able to foretell the future, starting out on BTL is always a risky business. There never seems to be a "right time". The best you can hope for is for the investment to be neutral in, say, the first year or so - at least in terms of return.

Starting out with a £180 loss every month and no guarantee of substantial capital appreciation to compensate doesn't make sense.

My advice would be this:

1) Don't be bothered about upsetting the seller or EA;
2) Try and find somewhere else where the maths make more sense;
3) If this is unsuccessful, pull out of th purchase and save up until you have enough of a deposit so that you turn a profit, rather than a loss, every month.

Good luck!

hgllgh

lypsey wrote: »

One last thing , I have sold my house and now rent a 700K house for 900 quid a month , in the middle of the country side . The house I sold a while back will be 50% of what it is today , I am sure of that

Jesus, I rent a crumby 1 bed in west london for 900+ a month ... shows what a p*** take london still is for both prices and rents!

Still, I'll be off traveling around the world soon enough while the housing market sorts itself out. Best policy now is to WAIT :money:

Doozergirl

lypsey wrote: »

Look at the facts , BTL is effectively finished, prices are too high , if Doozergirl says " I'm paying £69,000. Market rent is £500" , then good luck to her but in my mind she is getting just over 8% yield gross , but if she pays house insuarnce of 300 quid , or the house needs painting for 250 quid, the plumber comes out twice a year at 250 then she has 2 months vacancy , her yield comes down to about 6% gross

The yield is a decent one and it's nearer to 9% anyway. The extra leaves me plenty to maintain the property, especially considering it's been recently and comprehensively refurbished so I've got a run up and I have all the trades to hand anyway. I will not have any vacancy for a good few years yet.

lypsey wrote: »

You pay capital gains tax then whats the point

It's Income tax. And having a mortgage entirely paid for by someone else is just fine by me.

lypsey wrote: »

If houses go down 10% next year it is a totally suicidal investment. I believe she is lucky to be making any profit.

How is it suicidal? The same question gets asked over and over again and the answer is the same - if you don't need to sell, the price is irrelevant. My mortgage is fixed, no surprises for a long time yet. And if prices did drop by 10% next year, it would be worth, ooh, slightly more than I paid for it.

lypsey wrote: »

Why gambol when the bank is paying 6% plus

Leverage?I haven't put the full value of the house into it. I wouldn't get anywhere near the same return on the deposit money in the bank.

dunstonh

It's Income tax. And having a mortgage entirely paid for by someone else is just fine by me.

And capital gains tax. You pay that on sale of the property. As from April next year there will be no reliefs to sweeten things although there will be a flat rate of 18% on the gain.

I think a yield of 6% or higher and covers your mortgage with a bit to spare is fine. Its those that are paying people to live in their property where it makes no sense.

Timing though is not good at the moment and with all indications that we will see a continued drop in prices over the next 12 months, I see no reason why you have to buy now but wait until prices have gone down (which will further improve the yield).

Doozergirl

Thanks Dunstonh, I know about CGT on the sale. But I'm not selling. And if lypsey's crystal ball is right, I won't have any CGT to pay when the time comes either!

dunstonh

And if lypsey's crystal ball is right, I won't have any CGT to pay when the time comes either!

ROFL. Every cloud has a silver lining

trulysaintly

To be honest, when the B2Let market is in the papers each week, you can be assured that the best time to invest has already passed.

My general thoughts for anyone considering B2Let at the moment is unless you have enough disposable income to support the mortgage without a tenant, do not go ahead at this time.

In the South rental properties are at saturation point, and many Buy to Let deals will not proceed without a hefty deposit.

Be very careful.

hearts

dannyboycey wrote: »

Based on what!? Your ill informed anecdotal observations? I'm playing devil's advocate here but your statement is just as provocative and 'hysterical' as saying there will be a 40% drop.

Your not playing devils advocate or if you are your a bad one. You say my
" ill informed anecdotal observations" How did you reach this conclusion? I read the same as they read and a lot of other informed opinions on the subject, only I come to a different conclusion.
His opinion of a 40% drop is just that, his opinion, based on his evaluation of the data available. I think this is foolish and say so. He doesn't agree and thats fine.
For you to say my opinon that prices will not drop by 40% is hysterical is also your opinion but don't say you are unbiased when you are most certainly making your judgement from a stance on one side

ruggedtoast

Doozergirl wrote: »

And if prices did drop by 10% next year, it would be worth, ooh, slightly more than I paid for it.

LOL! You just cant beat that BTL logic.