Could I have done better.

[oldnbold]

I have a small BTL portfolio. I have just sold the first property that I bought 10 years ago when I knew nothing about BTL. It has been the worst performing property that I've had both in terms of income, capital gain and problem tenants, by a long way.

Now it's sold I've got actual real world figures on my investment over that 10 year period. I originally put down a £13k deposit to buy, and over the 10 years of ownership I've had £32k of net rental income, actual income less agent costs, mortgage costs, repairs, legal and selling costs etc. The sale has generated a £28.5k profit.

So my £13K invested 10 years ago has produced just over £60K pre tax profit.

I know absolutely zero about other forms of investment, other than having a few k in ISA's, premium bond's and a classic car.

My question to those of you in the know is could I have done better if I'd invested my pot somewhere else in 2007? Bearing in mind I'd only be happy with at most medium risk. But more to the point I'm mindfull that I maybe should now diversify a bit, so suggestions on a good place to stick the sale profit would be welcome.

[oldnbold]

VEX said:

I cant help you, but a really interesting question, I am interested to see the view point of others.

On paper, I would say that looks pretty good, considering there was a crash inbetween.

V.

I was hoping that someone with a knowledge of "the markets" could have shown that the £13k invested elsewhere for 10 years would have shown a better return, as I've often seen comments here that BTL is not that great a place to invest your cash and is often criticised.

I'm truly interested to find another place to invest other than BTL, but know nothing of stocks, bonds, funds etc and am a bit wary of IFA'S because I'm never sure how independent they actually are.

[oldnbold]

superlightr said:

Sounds like your agents could have done better with better tenants. If this was a "poor performing" property in your eyes what will a better one be like

Thanks for sharing your experiences, when I say poor performing I meant in relation to my other properties. Unfortunately this particular property is an ex LA house on a not so great estate. I've had several agent's over the years, the latest one offers me a rental guarantee provided the prospective tenants pass the higher than normal vetting, but this area just seems to attract scum.

I'm glad to see others that have very positive experience and good profit from BTL. I was hoping that some of the talented and successful investors that contribute here would have shown me that if I'd invested in a certain fund/shares/bond's 10 years ago I'd have made more with no hassle and therefore point me in the right direction for a future investment.

[oldnbold]

matrignano said:

Interesting thread, I'm thinking of a BTL to start investing "proper money" rather than just bits here and there in various ISAs.

What's attractive with BTLs is the leverage effect of the mortgage, however it is a lot more complex, time consuming and costly to manage, and much less tax efficient (stamp duty on purchase, income tax on rent - I'm a higher rate payer, capital gains on sale).

You're absolutely right, the leverage effect is a huge advantage, one of the reason's that my example did OK was the mortgage taken out in 2007 reverted to base rate plus 1% when the 2 year fix ended, so the financing cost was very low.

I appreciate that the government's recent changes make it more difficult to make good profit from rental income, especially for a higher rate tax payer. However my belief is that the capital gains still offer a worthwhile return as a medium to long term investment. I know a pal of mine has his BTL in his wife's name as she only works part time and he's a HR tax payer.

[oldnbold]

STURBO said:

I think that is a great return.

Buying into a highly leveraged BTL now, which only yields 5% at the current interest rate is a significant gamble. It might pay off but there could be some significant losses if capital values fall, rates rise and the tax regs change again. To think it's a one way bet now is foolhardy.

I absolutely agree, as with any investment some research is required, but in my opinion it is much easier for the average person to research the viability of a BTL than the stock market for example.

The above example took place during a fairly big recession, I purchased in a crappie area and with only a 15% deposit so was highly leveraged. For the first 6 years of ownership I'd have been lucky to even pay off the mortgage if I'd had to sell. Due to pure luck it worked out. I've learned from this and the remainder of my portfolio has been purchased with those lessons in mind.

I'd still like to investigate alternative investments if anyone has any suggestions, otherwise it's either another BTL or more premium bond's.

Edited by oldnbold on Wednesday 18th January 19:04

[oldnbold]

drainbrain said:

Well you've had 2 i.e. commercial property and forestry.

What about alternative property investment like Dolphin Trust?

Yes, I noted your commercial property, the forestry might just be out of my comfort zone.

[oldnbold]

gregs1959 said:

My son has bought a nice 2 bed terrace. All refurbished. £73,000. Getting £500pcm.

Where abouts is it?

[oldnbold]

HootersGsy said:

I've just stuck your numbers into a spreadsheet, assumed that 32k net rental income was earned 3.2k every year for the 10 years and that in your final year you received cash back of 41.5k (13k deposit plus your profit) and it shows an IRR of 29.8%. I'd say that was extremely respectable and indeed many fund managers would be envious.

Very interesting, perhaps BTL is/was not such a bad investment after all. I doubt however that it would be easy to repeat for someone investing now.

[oldnbold]

nct001 said:

I've turned £32k into (nearly) £300k in 10 years.

Another great example, my other BTL's would hopefully produce simular results if I sold, however they provide a fairly large chunk of my retirement income and are doing a great job in keeping me in holiday's and Porsche parts at the moment.

Edited by oldnbold on Tuesday 24th January 11:53

[oldnbold]

red_slr said:

FTSE100 is +16% over the last 10yr so you did well with around twice the return. I think even in a decent medium risk fund 20% over 10 years would be good going.

I guess this is where property can in some cases have 2 slices of cake because you get the rental income plus the increase in property value. If you happen to find a property cheap in a non desirable area then 10-20 years down the line its the new trendy area plus you had the 10-20 years rent then its probably pretty hard to do badly.

That's exactly the kind of information that I was after, thank you. I'm sure someone with a brain the size of a planet, and the inclination and time to study the market could have done better with stocks and shares, but for the average chap I think BTL is/was probably the way to go.

This particular property was in a cheap and undesirable area, it still is. It's not become trendy and desirable, in fact only 18 months ago I'd have been lucky to get what I paid for it. With what I know now I wouldn't have bought it.

Edited by oldnbold on Tuesday 24th January 17:47

[oldnbold]

Croutons said:

For some perspective OP:

- Purchased ubiquitous 2-bed flat "off plan" in 2006 in up-and-coming-guaranteed-to-amaze-with LE16 for a shade under £120k.
- Empty for first 18 months while I tried to flip it at 140k (others were genuinely achieving this and more) subbing at maybe £350pcm for the mortgage (assume £4200/ year so £6300 lost).
- Paid standing charges for electricity/ water/ council tax after 6 months, at least another £80 PCM over that time.
- Also ground and management charges (new block so no sinking fund) came to circa £100 pcm

- Tenanted from 18 months point onwards gained circa £120 pcm over the costs (ie rent less agent charges), enough to cover the ground/ management charges but not a lot more.

- Sold at £110k to get rid of it 8 years later.

Total down the swanny probably £17k all in, plus infequently time (had it taken more time I would have taken more notice/ interest, and acted sooner).

So it's not a one-way street.

Funnily enough I was offered a simular deal in that area, before I purchased the property I've just sold. The brother of a friend was involved with a company that were selling flats by the bucket load with a very small deposit needed. I'm not keen on flats anyway and the guys I know that did go ahead found themselves in the same situation as you.

Glad I gave them a body swerve. But yes things don't always go well, my house is not far from your flat, so prices have been fairly flat until 18 months ago.

[oldnbold]

sugerbear said:

oldnbold said:

I have a small BTL portfolio. I have just sold the first property that I bought 10 years ago when I knew nothing about BTL. It has been the worst performing property that I've had both in terms of income, capital gain and problem tenants, by a long way.

Now it's sold I've got actual real world figures on my investment over that 10 year period. I originally put down a £13k deposit to buy, and over the 10 years of ownership I've had £32k of net rental income, actual income less agent costs, mortgage costs, repairs, legal and selling costs etc. The sale has generated a £28.5k profit.

So my £13K invested 10 years ago has produced just over £60K pre tax profit.

Once you have taken into account capital gains tax and the tax you have paid on the rental income what did you actually make?

Are you running this through a limited company as the concept of pre-tax profit for an individual doesn't make much sense.

Not not through a limited company. As different individuals pay different rates of tax in this country I thought stating pre tax profit was entirely sensible.

[oldnbold]

matrignano said:

Can I ask some advice from experienced BTLetters?

I've been looking at student BTLs in Nottingham which I know well, having lived there for 4 years.
I have about £50k to put down as a deposit, which could get me something along these lines: http://www.rightmove.co.uk/property-for-sale/prope...

That would generate ~£15k rental income vs. ~£7k mortgage (on a 2 year fix). I would let an agent manage the property so would expect £3-4k in various expenses annually.

I can't work out if that's a worthwhile return (forgetting capital gains/losses for a second), or if I should stick to investing in funds where, unless there's a massive downturn, I could make about 5% annually?

I have some student rentals that I purchased for about the same price. I did put a bit more deposit in than you intend to, but your mortgage costs look a bit high. Are you intending to do interest only?

£15k should be easily achievable for a 4 student let, I get a bit more than that but mine are new build 3 storey town houses with a fairly high spec. Mine are fully agent managed at a 10% cost, I doubt you'll spend more than £1k per year on maintenance etc.

I have found that if you give students a good quality property they tend to look after it and you get higher rent. I've also never had a non payer, parental guarantee ensures that, and the properties are generally reserved 6 months in advance, mine were all sorted, contracts signed, for new tenants for July 17 before Christmas.

So your £50k should give you a net yield of about £7k pa, is your 5% from funds fairly risk Free?