Buy to let unethical ?
Discussion
Kermit power said:
I'm still struggling with this concept. If we were talking about social housing tenants where the council is completely fitting the bill, then I'd completely understand your reservations, and your above sentence would make complete sense.
Where it doesn't make sense to me is when you consider that almost half the households in London are in receipt of Housing Benefit.
I can understand why both a landlord and an insurance company would care to know if you've got a feckless tenant being fully funded by the council.
If, on the other hand, a tenant is, let's say, a receptionist or a nurse paying a rent of £150 per week that's being funded £130 by them and £20 by Housing Benefit, I don't understand why you or your insurance company would even want to know, much less care! How is that tenant any more likely to trash your property and do a runner on the rent than one paying the full £150?
You're also working on the assumption that people are actually telling you and their previous landlords that they're in receipt of Housing Benefit to give you accurate references, aren't you?
If I was one of the 40% of London households in receipt of Housing Benefit and I frequently came up against landlords who refused to have tenants who were claiming any amount of Housing Benefit, I'd simply open another bank account and have the council pay my Housing Benefit into that so that I could give you three months of bank statements with no payments from the council on them, and hey presto, I'm not a Housing Benefit tenant.
If they don't declare the hb their income will not be considered sufficient to pass the check.Where it doesn't make sense to me is when you consider that almost half the households in London are in receipt of Housing Benefit.
I can understand why both a landlord and an insurance company would care to know if you've got a feckless tenant being fully funded by the council.
If, on the other hand, a tenant is, let's say, a receptionist or a nurse paying a rent of £150 per week that's being funded £130 by them and £20 by Housing Benefit, I don't understand why you or your insurance company would even want to know, much less care! How is that tenant any more likely to trash your property and do a runner on the rent than one paying the full £150?
You're also working on the assumption that people are actually telling you and their previous landlords that they're in receipt of Housing Benefit to give you accurate references, aren't you?
If I was one of the 40% of London households in receipt of Housing Benefit and I frequently came up against landlords who refused to have tenants who were claiming any amount of Housing Benefit, I'd simply open another bank account and have the council pay my Housing Benefit into that so that I could give you three months of bank statements with no payments from the council on them, and hey presto, I'm not a Housing Benefit tenant.
Justayellowbadge said:
If they don't declare the hb their income will not be considered sufficient to pass the check.
Again, I can see how that would be the case for someone in receipt of maximum benefit, but remember, 98Elise won't let to any HB tenants. I don't see how failing to declare, let's say, £10-20 a week in HB would make that much of a difference to the outcome of checks a landlord makes? Whether or not the tenant drinks or smokes, or even has a Sky subscription can make more difference than that to their overall ability to pay the rent.
Kermit power said:
Justayellowbadge said:
If they don't declare the hb their income will not be considered sufficient to pass the check.
Again, I can see how that would be the case for someone in receipt of maximum benefit, but remember, 98Elise won't let to any HB tenants. I don't see how failing to declare, let's say, £10-20 a week in HB would make that much of a difference to the outcome of checks a landlord makes? Whether or not the tenant drinks or smokes, or even has a Sky subscription can make more difference than that to their overall ability to pay the rent.
If someone was in receipt of some benefits but was otherwise sound, then I would rent to them. Each case would be taken on its merits.
Fortunately every time I've let a property there has been a huge amount of interest as each one has been fully refurbished with new kitchens, carpets, boiler etc. I can honestly say that each one of my rentals is in better condition than my own home.
98elise said:
Perhaps I should be clearer, I was thinking more binary of someone in work, and somone who's main income is benefits (so full HB). I will not rent to the latter.
If someone was in receipt of some benefits but was otherwise sound, then I would rent to them. Each case would be taken on its merits.
Fortunately every time I've let a property there has been a huge amount of interest as each one has been fully refurbished with new kitchens, carpets, boiler etc. I can honestly say that each one of my rentals is in better condition than my own home.
You do not understand.If someone was in receipt of some benefits but was otherwise sound, then I would rent to them. Each case would be taken on its merits.
Fortunately every time I've let a property there has been a huge amount of interest as each one has been fully refurbished with new kitchens, carpets, boiler etc. I can honestly say that each one of my rentals is in better condition than my own home.
Someone may be on benefits of some description but not qualify for Housing Benefit
Interesting that a few posters have suggested it's abnormal for buying to be cheaper than renting. If the market is working efficiently renting should always be more expensive. In my experience renting in London and the South East on and off over the last 25 years, renting was always cheaper and usually much cheaper. That tells you how bonkers the market is and may how much inflation landlords were anticipating.
ATG said:
Interesting that a few posters have suggested it's abnormal for buying to be cheaper than renting. If the market is working efficiently renting should always be more expensive. In my experience renting in London and the South East on and off over the last 25 years, renting was always cheaper and usually much cheaper. That tells you how bonkers the market is and may how much inflation landlords were anticipating.
That's not necessarily true, is it?If a landlord has had a property for a long time, it's perfectly feasible that he could be renting it out to you for less than it would cost you to get a mortgage on the place now, but still be making a tidy profit himself.
Renting would only need to be more expensive than buying in all cases if the landlord was having to pay a mortgage forever as well as you paying rent forever, surely?
Kermit power said:
ATG said:
Interesting that a few posters have suggested it's abnormal for buying to be cheaper than renting. If the market is working efficiently renting should always be more expensive. In my experience renting in London and the South East on and off over the last 25 years, renting was always cheaper and usually much cheaper. That tells you how bonkers the market is and may how much inflation landlords were anticipating.
That's not necessarily true, is it?If a landlord has had a property for a long time, it's perfectly feasible that he could be renting it out to you for less than it would cost you to get a mortgage on the place now, but still be making a tidy profit himself.
Renting would only need to be more expensive than buying in all cases if the landlord was having to pay a mortgage forever as well as you paying rent forever, surely?
ATG said:
Kermit power said:
ATG said:
Interesting that a few posters have suggested it's abnormal for buying to be cheaper than renting. If the market is working efficiently renting should always be more expensive. In my experience renting in London and the South East on and off over the last 25 years, renting was always cheaper and usually much cheaper. That tells you how bonkers the market is and may how much inflation landlords were anticipating.
That's not necessarily true, is it?If a landlord has had a property for a long time, it's perfectly feasible that he could be renting it out to you for less than it would cost you to get a mortgage on the place now, but still be making a tidy profit himself.
Renting would only need to be more expensive than buying in all cases if the landlord was having to pay a mortgage forever as well as you paying rent forever, surely?
Let's say I've got (all random figures, so please feel free to correct them with realistic ones) a £200k house without a mortgage on it. I let it out for £1k per month. OK, I've got property maintenance costs and the like, but let's assume I'm clearing £500 a month. That's off an asset which is itself appreciating in value pretty rapidly, and has done pretty consistently for decades.
Am I not right in thinking that that's giving me a 3% return just on the rental alone, with the capital probably appreciating faster than that? If there's somewhere else with those sorts of returns for less risk, I'd love to know what it is!
ATG said:
No, he'd be making a terrible return compared to what he'd achieve by realising the capital gain and reinvesting.
Many small landlords are in a situation where, despite the terrible return, they have a good rental income and a sizeable CGT liability. No one wants to bite that cgt bullet, unless you're already discounting it in the yield calc and who does that? s2art said:
ATG said:
No, he'd be making a terrible return compared to what he'd achieve by realising the capital gain and reinvesting.
That would depend on his perception of what capital growth he may achieve by not selling yet. s2art said:
ATG said:
No, he'd be making a terrible return compared to what he'd achieve by realising the capital gain and reinvesting.
That would depend on his perception of what capital growth he may achieve by not selling yet. I've banged on about inflation expectations earlier in the thread, but to reiterate the point, if landlords are collectively prepared to accept negative carry as the norm on their properties, and that's my experience of London and SE, then there is something seriously wrong with the market. Either many of them aren't aware of the opportunity cost they're paying, or they expect substantial inflation.
ATG said:
No, he'd be making a terrible return compared to what he'd achieve by realising the capital gain and reinvesting.
Assuming he knows anything about investing safely and risk free. If I sold our place I would have a chunk of change, but short of stuffing it in a bank I have little or no idea how to invest it wisely.
I'm sure there would business/financial people queuing up to tell me the best place to put it, for their benefit......
ATG said:
s2art said:
ATG said:
No, he'd be making a terrible return compared to what he'd achieve by realising the capital gain and reinvesting.
That would depend on his perception of what capital growth he may achieve by not selling yet. I've banged on about inflation expectations earlier in the thread, but to reiterate the point, if landlords are collectively prepared to accept negative carry as the norm on their properties, and that's my experience of London and SE, then there is something seriously wrong with the market. Either many of them aren't aware of the opportunity cost they're paying, or they expect substantial inflation.
Kermit power said:
That's not necessarily true, is it?
If a landlord has had a property for a long time, it's perfectly feasible that he could be renting it out to you for less than it would cost you to get a mortgage on the place now, but still be making a tidy profit himself.
Renting would only need to be more expensive than buying in all cases if the landlord was having to pay a mortgage forever as well as you paying rent forever, surely?
I'm an example of this. We have a place 200 yards from Maidenhead station, Mrs rxe's old house. Bought in 1994, mortgage was paid off years ago. We rent it out at probably 25% under the going rate - the going rate seems to climb every minute, we're probably 30% under now. If a landlord has had a property for a long time, it's perfectly feasible that he could be renting it out to you for less than it would cost you to get a mortgage on the place now, but still be making a tidy profit himself.
Renting would only need to be more expensive than buying in all cases if the landlord was having to pay a mortgage forever as well as you paying rent forever, surely?
Why do we do it?
1) Long term tenants - they've been there 6 years, hopefully they'll stay another 6. Rent on time, no voids.
2) No agency churn.
3) They're sensible tenants, they know they've got a good deal, we don't get requests to fix dripping taps or any other trivia.
It's making about 25% return based on purchase price, and about 2.5% based on current price. Yes, we could sell it, pay CGT and then invest it in <something> to give a better return then 2.5%. I'm not sure what that <something> is, particularly as the house continues to appreciate in capital terms, so the 2.5 is probably closer to 5% all in.
s2art said:
Recent property price inflation in London does suggest expecting substantial inflation isnt unreasonable. Not true outside London or the SE.
I'm not suggesting it isn't. I'm saying it's indicative of the market being dysfunctional and that that represents a collective political and economic failure.98elise said:
The issue as ever is that we do not have enough supply of new homes in the right areas. If that was that case then property prices would be sensible, renting would be more of a choice, and BTL would really be a service satisfying demand.
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