'BTL Landlords go long'

dannyboycey

BobProperty wrote: »

Why is a gross yield of about 7% OK? I really wish someone would explain that to me. Most small businesses would want to make 20-25% return (alright that is on T/O not capital employed). You can get 6% putting the money in a bank.

Agreed... Many people think "If I can get a yield higher than that of a savings account then it must be worth it." In terms of risk though, BTL is a lot higher than a savings account. However, in times of rising HPI you can effectively invest a large sum of money without actually having the hard cash - which is why it is so attractive. You can gear up and buy more properties with the potential to literally make a million from nothing at all. This is exactly what many people have done! But with each new property, the risk doubles and as soon as prices decrease, these people are quite literally shafted because the money they are playing with was not theirs to begin with. If they hold on to their portfolio, they risk making a big monthly deficit on the mortgage payments, if they sell up, they owe the bank whatever the loss is. Very messy indeed. As with any get rich quick scheme, there's always a big catch.

LillyJ

That funny man with the glasses from the Halifax has a new advert about how high the interest rates are on their savings account (can't remember which song it is to now) so I suppose it would be better to put money in to the bank.

Not that I have a spare £60k, but if you did.

JonnyBravo

LillyJ wrote: »

That funny man with the glasses from the Halifax has a new advert about how high the interest rates are on their savings account (can't remember which song it is to now) so I suppose it would be better to put money in to the bank.

Not that I have a spare £60k, but if you did.

Yeah but the advert is for their ISA.... 5.25%?.... dont make me laugh

LillyJ

Oh is it? I only half listened to it. To be honest anyone who makes a financial decision based on the singing bank manager deserves to get bad rates!

Vincenzo

dannyboycey wrote: »

Agreed... Many people think "If I can get a yield higher than that of a savings account then it must be worth it." In terms of risk though, BTL is a lot higher than a savings account. However, in times of rising HPI you can effectively invest a large sum of money without actually having the hard cash - which is why it is so attractive. You can gear up and buy more properties with the potential to literally make a million from nothing at all. This is exactly what many people have done! But with each new property, the risk doubles and as soon as prices decrease, these people are quite literally shafted because the money they are playing with was not theirs to begin with. If they hold on to their portfolio, they risk making a big monthly deficit on the mortgage payments, if they sell up, they owe the bank whatever the loss is. Very messy indeed. As with any get rich quick scheme, there's always a big catch.

With ref. to the orig. post.... Some quick calculations...

7% yield on the purchase price of £200,000 is £14,000pa.
Assume 20% deposit = £40,000 invested.
Let's factor in interest payments at 6% £160,000 = £9,600

So you net £4,400 pa for a £40,000 investment = 11% gross yield (but let's face it there is not going to be any income tax to pay). Remembe rof course there are also costs associated with letting, maintaining etc.

Now take into account rental increases over time. Your purchase price never changes so your running yield increases. 11%...12%....13%....etc....

And this is without taking into account capital value appreciation. Remember this (should be) a LONG term investment. Of course there are risks involved but there is a correlation between risk and reward with any investment.

WTF?_2

What has made property so attractive is that it is one of the few investments available to the common man where you can leverage your money.

Consider that over the last few years if you had 10k savings you could put it in the bank and get maybe 4% interest (taxable) on that 10k. (pre-credit crunch when rates were ultra low)

Alternatively you could use it to borrow maybe 120k and 'make' >10% p.a. (tax free if you lived in it) on that 120k by buying a house and later selling it on to move up the ladder.

Since lenders were quite happy to dish out many multiples of salary to people with little or no deposit many saw it as a no-brainer to borrow eye watering amounts of cash to get into housing. They didn't think beyond the immediate $$$$ to the longer term implications of landing themselves in so much debt to buy and asset which was just as likely to fall in the slightly longer term.

IveSeenTheLight

!!!!!!? wrote: »

They didn't think beyond the immediate $$$$ to the longer term implications of landing themselves in so much debt to buy and asset which was just as likely to fall in the slightly longer term.

I think you have this the wrong way round.
Short term prices may drop, long term they will rise.

IveSeenTheLight

dopester wrote: »

How many properties have you got again? Just 2 or more? One mortgage free? (nice) but just trying to determine if your at risk of BTL margin calls with others.

Fair enough about you having accepted regional variances. I commend you for taking steps to acknowledge risks and protect your position rather than just assuming it will pass over and we'll be back to HPI soon enough.. as many others here seem to.

I only have 2 BTL properties and no, I do not have any risk of margin calls on the BTL's. I've already stated the LTV currently is 39% and 57% with overpayments each month reducing the LTV.

Wasn't the margin call theory quashed many posts ago.
Anyway, checked my policies again and there is nothing about restoring the LTV. Even if there was, I think the stance I have taken to reduce the LTV, means I am not at risk.

I'm now saving up to have a healthy deposit for the next BTL, I already have approx 15% and adding another approx 0.6% to this every month to this deposit. This would take me 15 months to get a 25% deposit at todays figures, but if prices drop then I'll achieve the 25% much quicker

I'm sure there are quite a number of other BTL investors also preparing to step into the market if prices drop and the figures add up

dopester

IveSeenTheLight wrote: »

I'm sure there are quite a number of other BTL investors also preparing to step into the market if prices drop and the figures add up

These "investors" have real cash? Or is their own wealth trapped in bricks and mortar and pretend equity? If they are hoping to step in with money borrowed from the banks then I think they'll find credit locked down.

Investors with liquidity win out in this situation - not extending credit to people already stuck with falling assets.

IveSeenTheLight

dopester wrote: »

These "investors" have real cash? Or is their own wealth trapped in bricks and mortar and pretend equity?

I think you'll be surprised.
I'm sure that this will reduce the number of 'amateur' investors coming on to the market, but those with available cash may outweigh this reduction and be waiting to pounce with more properties for their money.

People have been shouting that house prices have been overvalued since 2001. Who's to say that there are not investors who have invested elswhere awaiting prices to drop or rental yields to increase

dopester wrote: »

Investors with liquidity win out in this situation - not extending credit to people already stuck with falling assets.

Agreed. I'm an 'amateur' investor, but I too am building up a deposit to buy another property in the fufture.
If 'amateur' investors can do this, what do you think 'professional' investors will do when the figures add up