Is BTL still possible?

[Pit Pony]

I think yeild is a very crude way of looking at the finances of a BTL. It's an indication but assumes no lending.
I prefer to consider the profit, and the value (after fees) of the asset (the actual equity minus selling costs) , should I dispose of it. That to me is the true return on investment. (As a snap shot based on today)

This means that
If I haven't put up the rent
And
The value of asset has risen giving me more equity
And
The amount I owe has also gone down, because I've reinvested the profit from last year.

Then
My returns are looking a bit st.

To be fair, the rent is looking very cheap and most land lords would be thinking about putting it up.

However
Growth. The value of my equity minus fees to get it out in cold hard cash
Has increased.
I invested 42k in 2015. And that's worth £90k in 2021.

[Phooey]

Zio Di Roma said:

Yes, Fewer properties, Multiple whammy of the following, leading landlords to sell up:

George Osborne's tax changes

Local authority licensing

Legislation swinging even further towards tenant protection.

CGT rises ahead potentially.

Of course, those who remain in the market are enjoying higher rents, that compensate for the aggro.

re Fewer properties (to rent). That is definitely the case in my area (Nottingham South) at present, but 1000's of new houses currently being built. I just think to myself where have all these people suddenly come from!

[Zio Di Roma]

Phooey said:

Zio Di Roma said:

Yes, Fewer properties, Multiple whammy of the following, leading landlords to sell up:

George Osborne's tax changes

Local authority licensing

Legislation swinging even further towards tenant protection.

CGT rises ahead potentially.

Of course, those who remain in the market are enjoying higher rents, that compensate for the aggro.

re Fewer properties (to rent). That is definitely the case in my area (Nottingham South) at present, but 1000's of new houses currently being built. I just think to myself where have all these people suddenly come from!

The government is forcing LAs to address a national housing shortage. Whether that results in houses being built where they are needed is another matter.

My personal view is that there is currently a shortage of housing and strong demand for rented. Over time I see that correcting. The question is, what's the timeframe?

[LooneyTunes]

Mr Whippy said:

Plus there are loads of people selling houses and using rentals to provide a pseudo chain-free quick sale.
Two properties I looked at recently had sellers who were planning to do this.

It’s not a bad idea, until they realise there isn’t anywhere to rent!

I’m currently buying a couple of properties where the owners wanted to do that be but there are literally no equivalent properties to rent in the same (smallish) town. It is highly likely that the current owners will be my first tenants in these properties… but with the sort of supply shortage there is round here you wouldn’t otherwise pick a tenant who clearly wasn’t intending to stay long term.

Some of the agents are also finding the “you need to have sold before we’ll let you view” approach to selling properties is making things even trickier. Good quality stock has only been trickling on to the market recently and gets “sold” quickly, but with the vendor still not having found somewhere to go to it leaves everyone in limbo for an indeterminate period of time.

[98elise]

Pit Pony said:

I think yeild is a very crude way of looking at the finances of a BTL. It's an indication but assumes no lending.
I prefer to consider the profit, and the value (after fees) of the asset (the actual equity minus selling costs) , should I dispose of it. That to me is the true return on investment. (As a snap shot based on today)

This means that
If I haven't put up the rent
And
The value of asset has risen giving me more equity
And
The amount I owe has also gone down, because I've reinvested the profit from last year.

Then
My returns are looking a bit st.

To be fair, the rent is looking very cheap and most land lords would be thinking about putting it up.

However
Growth. The value of my equity minus fees to get it out in cold hard cash
Has increased.
I invested 42k in 2015. And that's worth £90k in 2021.

Yield and ROI are both legitimate measures, as is Capital Gain.

Yield is good for comparing different properties and locations. It also has I direct impact on ROI.

ROI is particular to a property though as it includes leverage.

[Mr Whippy]

LooneyTunes said:

Mr Whippy said:

Plus there are loads of people selling houses and using rentals to provide a pseudo chain-free quick sale.
Two properties I looked at recently had sellers who were planning to do this.

It’s not a bad idea, until they realise there isn’t anywhere to rent!

It’s exactly why we went for the best new build we could find.
One was ‘no chain’ but they intended to find somewhere between exchange and completion.
Which to me meant, we’d be stuck pre exchange for months, or never get there.

Our rental is going back to private ownership and so it was rent again or buy.

No rentals around. A few horrible things at really high prices, or nice family homes at £30,000+ a year!

Weird times.


But I can certainly assume that such wild distortions won’t settle down cleanly.
I should be completed on 30th Sept and it can’t come soon enough.

I fear it’s going to be a very rough winter.

[dmahon]

Pit Pony said:

I think yeild is a very crude way of looking at the finances of a BTL. It's an indication but assumes no lending.
I prefer to consider the profit, and the value (after fees) of the asset (the actual equity minus selling costs) , should I dispose of it. That to me is the true return on investment. (As a snap shot based on today)

This means that
If I haven't put up the rent
And
The value of asset has risen giving me more equity
And
The amount I owe has also gone down, because I've reinvested the profit from last year.

Then
My returns are looking a bit st.

To be fair, the rent is looking very cheap and most land lords would be thinking about putting it up.

However
Growth. The value of my equity minus fees to get it out in cold hard cash
Has increased.
I invested 42k in 2015. And that's worth £90k in 2021.

Yield should include all of that - it should take into account finance costs, fees etc and be against the current value.

People are just kidding them selves if they are calculating a yield without costs against an outdated property value.

[Abdul Abulbul Amir]

I use an ROI and ROE metric. ROI being pre tax profit on the total investment (property price, sdlt, and fees). ROE being post tax profit on the amount I have put in.

[98elise]

dmahon said:

Pit Pony said:

I think yeild is a very crude way of looking at the finances of a BTL. It's an indication but assumes no lending.
I prefer to consider the profit, and the value (after fees) of the asset (the actual equity minus selling costs) , should I dispose of it. That to me is the true return on investment. (As a snap shot based on today)

This means that
If I haven't put up the rent
And
The value of asset has risen giving me more equity
And
The amount I owe has also gone down, because I've reinvested the profit from last year.

Then
My returns are looking a bit st.

To be fair, the rent is looking very cheap and most land lords would be thinking about putting it up.

However
Growth. The value of my equity minus fees to get it out in cold hard cash
Has increased.
I invested 42k in 2015. And that's worth £90k in 2021.

Yield should include all of that - it should take into account finance costs, fees etc and be against the current value.

People are just kidding them selves if they are calculating a yield without costs against an outdated property value.

Yield is income (rent) vs purchase price/market value. Yield has a specific meaning in finance

If you deduct costs then you are calculating Profit not Yield. Pit Pony is calculating Return.

All are different ways of looking at the performance, for different reasons.

[Welshbeef]

Pit Pony said:

I think yeild is a very crude way of looking at the finances of a BTL. It's an indication but assumes no lending.
I prefer to consider the profit, and the value (after fees) of the asset (the actual equity minus selling costs) , should I dispose of it. That to me is the true return on investment. (As a snap shot based on today)

This means that
If I haven't put up the rent
And
The value of asset has risen giving me more equity
And
The amount I owe has also gone down, because I've reinvested the profit from last year.

Then
My returns are looking a bit st.

To be fair, the rent is looking very cheap and most land lords would be thinking about putting it up.

However
Growth. The value of my equity minus fees to get it out in cold hard cash
Has increased.
I invested 42k in 2015. And that's worth £90k in 2021.

Then take off the 28% CGT too

[dmahon]

98elise said:

Yield is income (rent) vs purchase price/market value. Yield has a specific meaning in finance

If you deduct costs then you are calculating Profit not Yield. Pit Pony is calculating Return.

All are different ways of looking at the performance, for different reasons.

It might have a specific meaning in finance, but if I calculate yield and ignore agents cost and maintenance costs then I’m just kidding myself. It’s a useless metric.

If I for instance know that my property valued at £120k net yielded £6k last year then I know I have a yield of 5% which is all I need to evaluate against alternate investments.

Edited by dmahon on Sunday 29th August 16:19

[Condi]

dmahon said:

If I for instance know that my property valued at £120k net yielded £6k last year then I know I have a yield of 5% which is all I need to evaluate against alternate investments.

Net yield still doesn't include tax though, so a 5% net yield from a BTL could return less cash in your pocket than 3.5% yield from an investment in a more tax efficient wrapper. eg ISA or pension.

I think a lot of people kid themselves about how good a BTL is, for whatever reason. Maybe 15 years ago the metrics were comparable, but these days with all the changes which have gone on to make it more unattractive, then just comparing a BTL yield with other forms of investment is not a good way to look at it IMO.

[Zio Di Roma]

Condi said:

dmahon said:

If I for instance know that my property valued at £120k net yielded £6k last year then I know I have a yield of 5% which is all I need to evaluate against alternate investments.

Net yield still doesn't include tax though, so a 5% net yield from a BTL could return less cash in your pocket than 3.5% yield from an investment in a more tax efficient wrapper. eg ISA or pension.

I think a lot of people kid themselves about how good a BTL is, for whatever reason. Maybe 15 years ago the metrics were comparable, but these days with all the changes which have gone on to make it more unattractive, then just comparing a BTL yield with other forms of investment is not a good way to look at it IMO.

I wouldn't disagree with you.

But there is a perception that bricks and mortar are safe. You cannot drive past your share portfolio and see it, touch it. But nor does your share portfolio call you at 9pm on Saturday because the toilet is backing up.

Also, the general public has a better knowledge of how houses work than the stock market. If you buy an ETF there's nothing you can do to influence your return. If you buy a BTL you can repaint it yourself and manage it yourself, rather than paying an agent.

I think BTL is still possible. But this might be the worst time in many years to get into it as a newbie.

[Phooey]

Zio Di Roma said:

I think BTL is still possible. But this might be the worst time in many years to get into it as a newbie.

That is very true today. Although going forward - on the other hand it could also be the best opportunity today if house prices continue to rise. I personally think we have to have a crash/reset at some point in the next 5yrs. Brits have gone mad for overpriced houses, stocks, cars, etc etc. The question is where would you want your money to be *if* we have that crash...

[Zio Di Roma]

Phooey said:

Zio Di Roma said:

I think BTL is still possible. But this might be the worst time in many years to get into it as a newbie.

That is very true today. Although going forward - on the other hand it could also be the best opportunity today if house prices continue to rise. I personally think we have to have a crash/reset at some point in the next 5yrs. Brits have gone mad for overpriced houses, stocks, cars, etc etc. The question is where would you want your money to be *if* we have that crash...

I think house prices will continue to rise. But I doubt we'll see the HPI of the late 90s-early noughties for the foreseeable future.

I don't know if I'd be going into leveraged and fully-priced property at the moment though.

If were concerned about a looming asset value crash, I'd want to be invested in something more liquid, over which I have a high degree of control and which I understand.

[98elise]

dmahon said:

98elise said:

Yield is income (rent) vs purchase price/market value. Yield has a specific meaning in finance

If you deduct costs then you are calculating Profit not Yield. Pit Pony is calculating Return.

All are different ways of looking at the performance, for different reasons.

It might have a specific meaning in finance, but if I calculate yield and ignore agents cost and maintenance costs then I’m just kidding myself. It’s a useless metric.

If I for instance know that my property valued at £120k net yielded £6k last year then I know I have a yield of 5% which is all I need to evaluate against alternate investments.

Edited by dmahon on Sunday 29th August 16:19

I'm not saying ignore other costs, I'm saying you are calculating Profit. That's useful for comparing with other investments. I do the same to compare with my S&S investments.

When 99% of people say Yield they mean price/value vs income (excluding costs). If you read any article on BTL, when they say Yield they mean it the same way.

Obviously you can call it what you want, but unless you qualify it each time most people will assume you mean price/value vs income.

Yield isn't a useless metric. Its a good broad brush way of considering the income potential for a given area, property type. Yield has a direct impact on your profit and return.

[LooneyTunes]

Zio Di Roma said:

But there is a perception that bricks and mortar are safe. You cannot drive past your share portfolio and see it, touch it. But nor does your share portfolio call you at 9pm on Saturday because the toilet is backing up.

Also, the general public has a better knowledge of how houses work than the stock market. If you buy an ETF there's nothing you can do to influence your return. If you buy a BTL you can repaint it yourself and manage it yourself, rather than paying an agent.

Although ETFs rely on the equities markets, I think it’s wrong to tie them too closely from an investor knowledge perspective. It is relatively easy to understand what drives the performance of an individual share price but much harder to choose ETFs.

Unfortunately unless you want to base your choice on some combination of historic performance (not guaranteed etc), record of the manager (and hope they don’t do a Woodford), a sector/region you like or believe will perform well, follow the “most popular”, choose whichever is getting the most forum mentions, or level of costs/fees, I suspect many find funds very hard to select. Bearing in mind LSE says there are over 1800 ( https://www.londonstockexchange.com/raise-finance/... ) it’s not straightforward.

Someone recently asked how to choose a fund ( https://www.pistonheads.com/gassing/topic.asp?h=0&... ). The number of responses was low (a bit surprising how pro-fund some are on BTL threads) and, although posters some tried to help in broad terms, I doubt the OP is much clearer about how to get his eye in with any degree of confidence. Of course he could pay for advice/involve an IFA/wealth manager but he’d be lucky if the essence of the pitch wasn’t “trust us, we won’t do a worse job than our peers”.

Compare that to property and its much more straightforward to predict your rental return (but with a degree of uncertainty around capital growth). Yes, there’s risk involved, but there always is with most investments.

I’m not anti-fund and do have some exposure to them but if you’re dealing with sums outside pension/isa wrappers, it’s easy to see why some might not see funds as being where they want to park their money… but equally property isn’t going to be the right investment for everyone.

[DonkeyApple]

Condi said:

Net yield still doesn't include tax though, so a 5% net yield from a BTL could return less cash in your pocket than 3.5% yield from an investment in a more tax efficient wrapper. eg ISA or pension.

I think a lot of people kid themselves about how good a BTL is, for whatever reason. Maybe 15 years ago the metrics were comparable, but these days with all the changes which have gone on to make it more unattractive, then just comparing a BTL yield with other forms of investment is not a good way to look at it IMO.

Absolutely. The man maths traditionally used to calculate BTL viability versus other investments has always been on the 'creative' side with a tendency to ignore leverage, taxes, void risk, default risk, cost changes etc etc.

In the grand scheme of things an average, quality property that is managed competently will over the medium to long term deliver the same ballpark yields as a typical, blue chip equity portfolio. The two larger, defining factors tend to be derived more from the amount of leverage being adopted and how an investor wishes to target the capital appreciation aspects.

What skews BTL into being more favourable tends to be a natural English fear of financial markets. The UK general public are incredibly unsavvy financially which tends to be why so many seriously dodgy financial gambling products are able to be sold as 'investments'. Whereas, most people feel they understand how property works, despite being equally unsavvy there.

On top of that, leverage on property speculation and geared investing is readily available and cheap. The UK public are only now beginning to get their heads around using leverage for investment in other markets such as equities and funds.

Finally, there is the tangible and secure nature of UK property. Investors can go and stand outside their slum and English Law, despite what many moaners will argue, will protect their asset until Hell freezes over. Plus, there is that utility factor to consider. You might get better yield and better capital appreciation from a leveraged blue chip equity portfolio but you can go and live in it if you find yourself needing a home.

BTL remains as viable as it ever has been for proper investors but the spivs wanting that quick return or easy living on top of a pyramid of turd have been quite firmly steered out of the market that they should never have been allowed anywhere near with their incompetence and negligence. Pretty much the only good thing the Cameron Govt did was to target the spivs and kick them out.

[Condi]

Let's be honest, a lot of the reason BTL can work is because people don't disclose their income for tax purposes.

A few years ago in Bristol the council required all landlords to register with them. HMRC cross checked this list against the tax returns and about 50% of registered landlords were not declaring any income from their properties.

[Groat]

Old style Housing Benefit rents are paid all together every 4 weeks. Which means that on one calendar month each year there are 2 payments.

Today is the second HB payment day this month. (well actually Friday was but the agent processes them the next working day)