BTL, is it still viable?

[trowelhead]

drainbrain said:

I always wonder why people want to kick off their btl ventures with a 6 figure debt.

I mean, what's wrong with buying something like this without any loan at all?

http://www.rightmove.co.uk/property-for-sale/prope...

LHA rate's about £400pcm, full management would be about £50pcm inc vat, and you could bank £300pcm most months without any hassle.

Put another way, I'd rather have 3 of these all day than the one you propose buying.

You've shocked me here mate, i was 99% sure that link would be to a flat in Glasgow

[RL17]

should still work - works by general house price gains as supply too low, Government policies will unfortunately push rents up and restrict supply as less properties being done up for rent. Overall housing shortage should continue although prices may be more volatile in some areas. More people have to move areas for work and jobs/employment/businesses seem to change alot more often these and make renting still popular/ a necessity

mortgages (interest only) allow gains to be multiplied. Split ownership 50/50 sat and can make more use of current annual cgt allowances without being hit too high by solicitors costs for buying and selling. Gains multiplied but losses would be too. Works by paying off mortgage when property sold and then having more equity left over for next one (one then becomes two etc)

And currently the mortgage interest relief restrictions imposed don't impact basic rate taxpayers (used to work in tax and accountancy so aware changes often happen).

Lots in financial pages about tighter mortgage controls, reduced lending %s and possible rate rises (and higher rates anyway over residential rates)

better ways to invest though and property very inflexible if need access to substantial cash due to some short need or change in circumstances

[DonkeyApple]

trowelhead said:

Spot on.

Do you think there is any chance of removal of interest relief from (small) ltd cos now that a chunk of investors are moving their portfolios into ltd structure?

And at what level would one be considered highly geared? Are we talking the 95% + same day remortgage crowd, or your average 75% LTV?

I honestly don't know re smaller Ltd's. I suspect not as they tend not to be as highly geared as private assets because the limited liability nature of the structure means that lenders carry out more kyc and have stronger criteria so such assets would be deemed a lower risk to the market.

Re gearing, I guess everyone would have a different view but in my book hearing becomes 'high' when a typical market sell off forces the lender to close out the client. In the U.K. the historical percentage fall in property that lenders seem to stress test it is 25-30%? That would take us to the 65-70% level but you need to still have margin remaining at that point for the lender not to foreclose (in a market without Govt intervention which is what all these changes are about recreating). Basically, 50% LTV would mean almost no chance of the lender for closing in a typical sell-off, it is also a % in our industry (derivatives)that is deemed to have almost no change in risk from being wholly ungeared. But above 60% and the risk of the lender foreclosing in a sell off has suddenly become much higher, as such, my view is that anything from 60% upwards can be dropped into the 'highly geared' box as that's roughly the level where default risk starts ramping up.

[13m]

DonkeyApple said:

trowelhead said:

Spot on.

Do you think there is any chance of removal of interest relief from (small) ltd cos now that a chunk of investors are moving their portfolios into ltd structure?

And at what level would one be considered highly geared? Are we talking the 95% + same day remortgage crowd, or your average 75% LTV?

I honestly don't know re smaller Ltd's. I suspect not as they tend not to be as highly geared as private assets because the limited liability nature of the structure means that lenders carry out more kyc and have stronger criteria so such assets would be deemed a lower risk to the market.

Re gearing, I guess everyone would have a different view but in my book hearing becomes 'high' when a typical market sell off forces the lender to close out the client. In the U.K. the historical percentage fall in property that lenders seem to stress test it is 25-30%? That would take us to the 65-70% level but you need to still have margin remaining at that point for the lender not to foreclose (in a market without Govt intervention which is what all these changes are about recreating). Basically, 50% LTV would mean almost no chance of the lender for closing in a typical sell-off, it is also a % in our industry (derivatives)that is deemed to have almost no change in risk from being wholly ungeared. But above 60% and the risk of the lender foreclosing in a sell off has suddenly become much higher, as such, my view is that anything from 60% upwards can be dropped into the 'highly geared' box as that's roughly the level where default risk starts ramping up.

I think there is a significant risk for sole trader landlords who are spending money incorporating existing portfolios, because one of two things may happen:

1. If the property market starts to go tits up as a result of the tax changes, the government may row back from them in one form or another. The investment in incorporation will have been wasted.

2. The goverment decides to go after small corporate landlords. The investment in incorporation will have been wasted.

It took me a while to work out what the real reasons were for the tax changes, because of the way it was sold to the public and also the exclusion of corporates. But I think the rationale was this:

- MPC considered BTL debt to be a structural risk to the economy and warned governmment.

- Government decides to act.

- Government realises that legislation could affect some big players.

- Government decides withdrawal of higher rate tax relief will target only sole traders, i.e. probably smaller landlords.

- George Osborne sells it to the public as helping FTBs.

A cunning wheeze, because in part it works.

The number of landlords for whom incorporation works is very small. They will either sell (tax income) or de-leverage (reduced risk, potentially increased housing stock for sale). The remaining landlords MIGHT be more professional due to being companies and big foreign money may see an opportunity to invest in large scale rental developments. The govermnent wins all ways.

BUT:

- There are plenty of corporates more risky than small sole traders, with the added problem that the owners can walk away with (often) small or no directors' guarantees. If the market is undermined, these companies are as exposed as sole traders, but they can be walked away from by the owners with little or no recourse.

- The tax changes are a very blunt instrument that may cause a lot of collateral damage.

- The move undermines confidence in the tax system.

- Confidence will be reduced amongst builders of both rented and sale stock, fewer will want exposure to new developments.

Edited by 13m on Thursday 16th March 08:03

[drainbrain]

trowelhead said:

drainbrain said:

I always wonder why people want to kick off their btl ventures with a 6 figure debt.

I mean, what's wrong with buying something like this without any loan at all?

http://www.rightmove.co.uk/property-for-sale/prope...

LHA rate's about £400pcm, full management would be about £50pcm inc vat, and you could bank £300pcm most months without any hassle.

Put another way, I'd rather have 3 of these all day than the one you propose buying.

You've shocked me here mate, i was 99% sure that link would be to a flat in Glasgow

Ach, I thought as the OP is in Devon a Devon property might be more appropriate. Obviously he could buy one in Glasgow......

http://www.futurepropertyauctions.co.uk/property_d...

.....and THAT one's easily rentable at £500 a month (not £400 as the auctioneer says).....but, well..... 'but' something or other I'm sure.

As to "BTL, is it still viable"? I can tell you that right now it is definitely viable, if viable means profitable. No ifs or buts. Definitely viable.

Personally I wouldn't overthink the matter, or try to guess what tomorrow, next week, next year or 10 years will bring. That's just a way to make yourself crazy.

[clio007]

drainbrain said:

Ach, I thought as the OP is in Devon a Devon property might be more appropriate. Obviously he could buy one in Glasgow......

http://www.futurepropertyauctions.co.uk/property_d...

.....and THAT one's easily rentable at £500 a month (not £400 as the auctioneer says).....but, well..... 'but' something or other I'm sure.

As to "BTL, is it still viable"? I can tell you that right now it is definitely viable, if viable means profitable. No ifs or buts. Definitely viable.

Personally I wouldn't overthink the matter, or try to guess what tomorrow, next week, next year or 10 years will bring. That's just a way to make yourself crazy.

Thats a guide price so who knows what it will make in auction. Is that particular area easy to rent?

[DonkeyApple]

13m said:

I think there is a significant risk for sole trader landlords who are spending money incorporating existing portfolios, because one of two things may happen:

1. If the property market starts to go tits up as a result of the tax changes, the government may row back from them in one form or another. The investment in incorporation will have been wasted.

2. The goverment decides to go after small corporate landlords. The investment in incorporation will have been wasted.

It took me a while to work out what the real reasons were for the tax changes, because of the way it was sold to the public and also the exclusion of corporates. But I think the rationale was this:

- MPC considered BTL debt to be a structural risk to the economy and warned governmment.

- Government decides to act.

- Government realises that legislation could affect some big players.

- Government decides withdrawal of higher rate tax relief will target only sole traders, i.e. probably smaller landlords.

- George Osborne sells it to the public as helping FTBs.

A cunning wheeze, because in part it works.

The number of landlords for whom incorporation works is very small. They will either sell (tax income) or de-leverage (reduced risk, potentially increased housing stock for sale). The remaining landlords MIGHT be more professional due to being companies and big foreign money may see an opportunity to invest in large scale rental developments. The govermnent wins all ways.

BUT:

- There are plenty of corporates more risky than small sole traders, with the added problem that the owners can walk away with (often) small or no directors' guarantees. If the market is undermined, these companies are as exposed as sole traders, but they can be walked away from by the owners with little or no recourse.

- The tax changes are a very blunt instrument that may cause a lot of collateral damage.

- The move undermines confidence in the tax system.

- Confidence will be reduced amongst builders of both rented and sale stock, fewer will want exposure to new developments.

Edited by 13m on Thursday 16th March 08:03

Builders have had a confidence boost because now instead of dealing with 100 individual speculators and gamblers they just pre agree with an investment fund. The builders have benefitted from this change and will continue to do so.

The move itself doesn't undermine confidence in the tax system but certainly all the faffing about in the last decade in the entire spectrum of taxation has just annoyed the revenue creators and has stiffled investment in all sorts of areas.

Corporates aren't generally more risky than individuals. Lenders have a tendency to price risk with Ltd borrowers better than personal and on the flip side they can force sell the assets much more easily so they win on both sides. But generally this move is all about binning the cowboy BTLer and shifting the assets to pension funds and sizeable, ungeared corporates. The number of assets moving into little LTds will be small as most such structures just won't be able to borrow enough to take over the assets.

The BTL market had become an absolute nightmare with tens of thousands of properties under funded and comprising a serious risk. The Stamp change has worked excellently at halting growth in the sector (while having the fringe benefit of bringing London top end growth under control) and the 5 year warning of the removal of offsetting has allowed an orderly exit by the highly geared as their assets are transferred to lower risk investors.

In reality, this is an extremely rare example of a Govt led structural change being done cleverly and properly and having the desired effect.

[trowelhead]

DonkeyApple said:

trowelhead said:

Spot on.

Do you think there is any chance of removal of interest relief from (small) ltd cos now that a chunk of investors are moving their portfolios into ltd structure?

And at what level would one be considered highly geared? Are we talking the 95% + same day remortgage crowd, or your average 75% LTV?

I honestly don't know re smaller Ltd's. I suspect not as they tend not to be as highly geared as private assets because the limited liability nature of the structure means that lenders carry out more kyc and have stronger criteria so such assets would be deemed a lower risk to the market.

Re gearing, I guess everyone would have a different view but in my book hearing becomes 'high' when a typical market sell off forces the lender to close out the client. In the U.K. the historical percentage fall in property that lenders seem to stress test it is 25-30%? That would take us to the 65-70% level but you need to still have margin remaining at that point for the lender not to foreclose (in a market without Govt intervention which is what all these changes are about recreating). Basically, 50% LTV would mean almost no chance of the lender for closing in a typical sell-off, it is also a % in our industry (derivatives)that is deemed to have almost no change in risk from being wholly ungeared. But above 60% and the risk of the lender foreclosing in a sell off has suddenly become much higher, as such, my view is that anything from 60% upwards can be dropped into the 'highly geared' box as that's roughly the level where default risk starts ramping up.

Thanks for that, really useful. So assuming one held a portfolio of properties at 75% LTV and a cash buffer in the company equivalent to take the LTV on all loans down to 50% LTV or less - should be safe enough to weather most storms?

[kuro]

clio007 said:

drainbrain said:

Ach, I thought as the OP is in Devon a Devon property might be more appropriate. Obviously he could buy one in Glasgow......

http://www.futurepropertyauctions.co.uk/property_d...

.....and THAT one's easily rentable at £500 a month (not £400 as the auctioneer says).....but, well..... 'but' something or other I'm sure.

As to "BTL, is it still viable"? I can tell you that right now it is definitely viable, if viable means profitable. No ifs or buts. Definitely viable.

Personally I wouldn't overthink the matter, or try to guess what tomorrow, next week, next year or 10 years will bring. That's just a way to make yourself crazy.

Thats a guide price so who knows what it will make in auction. Is that particular area easy to rent?

Not familiar with Okehampton tba. It's more or less exactly opposite to me on the other side of dartmoor so a bit of a trek to get to. Good point about starting with a 6 figure debt. We can get flats for much cheaper but the missus is set on a house and isn't keen on leasehold property.

[13m]

DonkeyApple said:

Builders have had a confidence boost because now instead of dealing with 100 individual speculators and gamblers they just pre agree with an investment fund. The builders have benefitted from this change and will continue to do so.

Have you any data to back that up? With regard to the funds directly substituting smaller investors I mean.

DonkeyApple said:

The move itself doesn't undermine confidence in the tax system but certainly all the faffing about in the last decade in the entire spectrum of taxation has just annoyed the revenue creators and has stiffled investment in all sorts of areas.

I disagree, the move sends the message that the government will bring in swingeing and hard-hitting property taxation with no consultation, nor consideration of collateral damage. It's certainly affected my company's attitude to development exposure - we have frozen any significant investment.

DonkeyApple said:

Corporates aren't generally more risky than individuals. Lenders have a tendency to price risk with Ltd borrowers better than personal and on the flip side they can force sell the assets much more easily so they win on both sides.

A lot of commercial lenders don't price company and personal debt much differently with regard to resi property. And what makes you think it's easier for lenders to force the sale of company assets?

DonkeyApple said:

But generally this move is all about binning the cowboy BTLer and shifting the assets to pension funds and sizeable, ungeared corporates. The number of assets moving into little LTds will be small as most such structures just won't be able to borrow enough to take over the assets.

I don't disagree that encouraging the bigger players was part of the thinking. However, there are as many cowboys in small corporate structures as there are as individuals / partnerships.

DonkeyApple said:

The BTL market had become an absolute nightmare with tens of thousands of properties under funded and comprising a serious risk. The Stamp change has worked excellently at halting growth in the sector (while having the fringe benefit of bringing London top end growth under control) and the 5 year warning of the removal of offsetting has allowed an orderly exit by the highly geared as their assets are transferred to lower risk investors.

Stamp duty has done very little to deter BTL as far as I am aware. Over the term that an average BTLer intends to hold property the additional cost is trifling. It might slow down flippers, but that's all. No, that move was just a tax grab.

DonkeyApple said:

In reality, this is an extremely rare example of a Govt led structural change being done cleverly and properly and having the desired effect.

In reality you have no idea whether it will have the desired affect, none of us does. Because its impact has not yet been felt. What it has done is make the people who would have bought personally buy in a company.

To declare my interest here: I am a director of a property company and also have a personal BTL portfolio. Both have gearing, neither above about 50%. The tax rules will not affect me beyond a mild irritation. In fact it is conceivable that I will benefit from rent increases.

[DonkeyApple]

trowelhead said:

Thanks for that, really useful. So assuming one held a portfolio of properties at 75% LTV and a cash buffer in the company equivalent to take the LTV on all loans down to 50% LTV or less - should be safe enough to weather most storms?

You'd think so but as the lender doesn't have a clear control of your cash margin then they wouldn't include it that easily.

[drainbrain]

http://www.cityam.com/258773/governments-assault-b...

It's said that opinions are like bumholes. Everyone's got one.

[drainbrain]

kuro said:

clio007 said:

drainbrain said:

Ach, I thought as the OP is in Devon a Devon property might be more appropriate. Obviously he could buy one in Glasgow......

http://www.futurepropertyauctions.co.uk/property_d...

.....and THAT one's easily rentable at £500 a month (not £400 as the auctioneer says).....but, well..... 'but' something or other I'm sure.

As to "BTL, is it still viable"? I can tell you that right now it is definitely viable, if viable means profitable. No ifs or buts. Definitely viable.

Personally I wouldn't overthink the matter, or try to guess what tomorrow, next week, next year or 10 years will bring. That's just a way to make yourself crazy.

Thats a guide price so who knows what it will make in auction. Is that particular area easy to rent?

Not familiar with Okehampton tba. It's more or less exactly opposite to me on the other side of dartmoor so a bit of a trek to get to. Good point about starting with a 6 figure debt. We can get flats for much cheaper but the missus is set on a house and isn't keen on leasehold property.

Acksherley....if you're using management the renter could be in Timbuktu for all it matters. But there are so many versions of how and where and what to do with property to make a dollar from it that the best thing to do is what you're comfiest with.

You might find some of this amusing:

http://www.propertyinvestmentproject.co.uk

Edited by drainbrain on Thursday 16th March 22:14

[bloomen]

kuro said:

Not familiar with Okehampton tba. It's more or less exactly opposite to me on the other side of dartmoor so a bit of a trek to get to. Good point about starting with a 6 figure debt. We can get flats for much cheaper but the missus is set on a house and isn't keen on leasehold property.

My mother got into BTL many years ago. She went for a house that was 'pretty' that gained about 50 grand in value in ten years. If she'd bought a couple of average flats in a more dynamic location she would've got several hundred quid more in rent per month and gained a few hundred grand extra in appreciation.

Either you're in business or you're not. Put the emotion to bed or pay for it down the line.

[Nick928]

kiethton said:

Why not get the benefits of BTL in a more tax efficient manner (this is what the government is pushing IMO)

Try investing companies like Grainger (UK), or even LEG Immobilien/Deutsche Whonen (Germany), you can invest via an ISA tax free. Being REITs the risk is diversified across thousands of properties minimising the one-off risks (tenants smashing the place), management manage LTV's cross-cycle to minimise the debt/cyclical risk and distribute the income they generate without paying tax.

You have the benefits of spreading your risk, keep the capital gain though share value increases, get a stable income (dividend) and maximise liquidity should you need the cash, you can sell in a day should you need to. You also have far lower frictional costs (£12.50 dealing price and 0.5% stamp vs. normal stamp and conservancy fees) and the benefit of a professional management team to make sure they are operating in your best interests.

NB, this is not investment advice

Having come from BTL and being green to this type of thing, how would you go about investing in this type of company?

[kiethton]

Nick928 said:

kiethton said:

Why not get the benefits of BTL in a more tax efficient manner (this is what the government is pushing IMO)

Try investing companies like Grainger (UK), or even LEG Immobilien/Deutsche Whonen (Germany), you can invest via an ISA tax free. Being REITs the risk is diversified across thousands of properties minimising the one-off risks (tenants smashing the place), management manage LTV's cross-cycle to minimise the debt/cyclical risk and distribute the income they generate without paying tax.

You have the benefits of spreading your risk, keep the capital gain though share value increases, get a stable income (dividend) and maximise liquidity should you need the cash, you can sell in a day should you need to. You also have far lower frictional costs (£12.50 dealing price and 0.5% stamp vs. normal stamp and conservancy fees) and the benefit of a professional management team to make sure they are operating in your best interests.

NB, this is not investment advice

Having come from BTL and being green to this type of thing, how would you go about investing in this type of company?

They're listed companies on either the London Stock Exchange or the European equivalent.

Any normal stocks and shares account should let you buy in but research them as you would any other investment

[Nick928]

kiethton said:

They're listed companies on either the London Stock Exchange or the European equivalent.

Any normal stocks and shares account should let you buy in but research them as you would any other investment

Recommendations for a good value account?

[kiethton]

Nick928 said:

kiethton said:

They're listed companies on either the London Stock Exchange or the European equivalent.

Any normal stocks and shares account should let you buy in but research them as you would any other investment

Recommendations for a good value account?

I use Hargreaves Landsdown but others may prefer other providers.

Regular threads in the finance forum which may help

[dogz]

BTL is definitely viable even with the reduction in interest relief and increase in stamp duty

Chose your properties and areas wisely and you can make a good increase straight off the bat with a minor refurb project

Depending on MTG amount you can find BTL mortgages with low or zero fees but this will depend on the amount you borrow as to which is the best deal. Look at Platform Intermediaries site as an example. You can get 2.44% with zero fee on 75% LTV (I think there may be a small admin fee to pay but you would need to check

My personal perspective is where can you get someone else to pay for a significant asset for you (a tenant does through rent). It not all plain sailing but if you can weather the voids and occasional poor tenant then, in my opinion you are on to a winner.

[Nick928]

kiethton said:

I use Hargreaves Landsdown but others may prefer other providers.

Regular threads in the finance forum which may help

Thanks very much, I'll see what they offer.