Is there money to be made in 2nd/3rd properties?

[Groat]

NickCQ said:

Groat said:

the rents are going up 5% from next week ... the value of the properties is up 10% on last year

Implies the yield is down 5%... should consider divesting to a higher yielding asset

We-ell, "sell" isn't really in the portfolio builder's vocabulary. And landlords TEND to base yield calculations on their original purchase price. Of course you MIGHT fancy selling to raise cap to do something else, but you might just refinance to raise the cap instead.

And whilst there's certainly much to be said for continually selling off stock and replacing it with better, many an 80 year old landlord's been retired for 30 years and really can't be arsed with all that hassle.

Incidentally, Condi, other than the type of individual who has devoted their financial life to future gratification, "all that hassle" could extend to many things, including (tho not exclusively) flash motors, really expensive watches, rushing about the world on holidays, class 'A' substances, climbing in the Himalaya, hookers, and pretty much anything that doesn't involve peace, quiet, calm and a lot of doing very little.

[Groat]

rockin said:

Groat said:

I think you'll find that there is no such thing as a charge levied on 'potential CGT'. I think that's something you've imagined.

Ay yes, the "Hotel California" investment plan. What doesn't go as Income Tax it will go as Inheritance Tax instead.

A brilliant tax saving strategy - avoid 28% CGT, pay 40% IHT and, errrm, you're dead.

I dunno if you'd call it a "brilliant tax saving strategy", but I was planning to leave everything I own to the missus. That'll be 0% IHT.

Why are you so obsessed with tax? You're letting the tail wag the dog too much.

[jonny70]

Groat said:

Well, that one was bought in 2003 and sold in 2008. Boredom purchase.

Edited by Groat on Friday 5th March 00:49

Holiday home or for investment purposes? (If so what does it yield?)

[NickCQ]

Groat said:

We-ell, "sell" isn't really in the portfolio builder's vocabulary.

That's the nub of it. It depends what the purpose of all this is.

My goal is to provide for future consumption by delaying it today, hopefully with growth in the interim. That splits your life into an "accumulation phase" whilst working and a "spending phase" where you are no longer earning and are running off assets to meet current spending. I have no need for income off the portfolio today so would just be reinvesting it anyway.

[jonny70]

Condi said:

At 80 years old why not just sell the place, cash in your £250k or whatever, and have the best final 10 years of your life?!

If the property is providing an income that pays their bills then why you sell( a decent agent will manage all the problems)? Surely in retirement, one would want a regular income!

[jonny70]

Joey Deacon said:

Or who had £1 million in their Vanguard LifeStrategy ISA and watched it lose £200K over night back in March when Covid started. Yes it has since recovered, but you have to have big kahunas to see a drop like that and just assume it will recover.

Anyone that has a million in their ISA would of started investing 30 years ago due to the isa limits, started at 3k a year called PEPs then it was £7k a year when it was renamed isa in the 90’s. It wasn’t till 2015 the annual limit become 20k,so the most someone could of contributed would of been a few hundred grand over 30 years.
Therefore most of that million would be stock growth/gains and that person having been invested in the market for 30 years would know that in times of economic crisis early 90’s, 2001 and 2008 and 2020 that the stock market will always fall but will always rise again to new heights as the economy recovers and grow again.

[Groat]

NickCQ said:

Groat said:

We-ell, "sell" isn't really in the portfolio builder's vocabulary.

That's the nub of it. It depends what the purpose of all this is.

My goal is to provide for future consumption by delaying it today, hopefully with growth in the interim. That splits your life into an "accumulation phase" whilst working and a "spending phase" where you are no longer earning and are running off assets to meet current spending. I have no need for income off the portfolio today so would just be reinvesting it anyway.

There are definitely people who think future gratification is prudent. But I don't. It makes absolutely no sense to me, and never has even as a nipper when I'd spend any cash that came my way. How do you know what the future holds, or how you're going to feel and what you're going to need then? The BIGGEST mistake is thinking that your feelings and needs aren't going to change, or that they're somehow predictable. They will. And they're not.

That doesn't mean I'm right, but it certainly feels that way.

[Condi]

Groat said:

There are definitely people who think future gratification is prudent. But I don't. It makes absolutely no sense to me, and never has even as a nipper when I'd spend any cash that came my way.

Thats patently untrue. You've saved to get your deposit together for your first property, which you could have spent on coke and hookers, ballroom dances, whatever else anyone did in the 1940s But you didn't, you saved that, you invested it, which was done with the intention of providing a future income. Then instead of spending all the profits from that on enjoying life in the present you reinvested that in another property and so on.

You've delayed gratification from the present to the future in the hope of leveraging the money. We all do, just in different ways, and aim for a balance between the present and future. Aside from the people who live off beans now and believe in the FIRE thing, they're weirdos.

[Condi]

jonny70 said:

Condi said:

At 80 years old why not just sell the place, cash in your £250k or whatever, and have the best final 10 years of your life?!

If the property is providing an income that pays their bills then why you sell( a decent agent will manage all the problems)? Surely in retirement, one would want a regular income!

Because your income stream from a property over your remaining lifespan will be less than the properties value. And so, given the expected remaining life (10 years maybe), the best thing you can do to enjoy that money is cash it in and spend it. No point having an income after you've already departed.

[anonymous-user]

Groat said:

Why are you so obsessed with tax? You're letting the tail wag the dog too much.

Au contraire, mon ami. I'm obsessed with "flexibility". A well diversified portfolio that I can chop, change and spend whenever I like is what floats my boat.

What I find so challenging are the "transaction costs" around property these days, particularly as the whole regime works as a "South of England Tax". Anyone who has, for instance, a second home in London is essentially boxed in tight. For many, simply moving to the identical house next door could generate a tax bill of at least £200,000 in a combination of CGT and Stamp Duty!

[blueg33]

rockin said:

Groat said:

Why are you so obsessed with tax? You're letting the tail wag the dog too much.

Au contraire, mon ami. I'm obsessed with "flexibility". A well diversified portfolio that I can chop, change and spend whenever I like is what floats my boat.

What I find so challenging are the "transaction costs" around property these days, particularly as the whole regime works as a "South of England Tax". Anyone who has, for instance, a second home in London is essentially boxed in tight. For many, simply moving to the identical house next door could generate a tax bill of at least £200,000 in a combination of CGT and Stamp Duty!

Obviously flexibility is an issue - hence diversity of portfolio is useful. I can get cash from my ISA's immediately, it takes longer to free it up when tied up in property unless I re-finance which takes a couple of weeks.

Transaction costs are high and are the reason we nearly didnt buy this year, however the SDLT holiday took £15k off those costs for us and the viability was better.

I spend much of my working day modelling real estate cashflows and returns, so I did mine to the nth degree using the models I use for work

[Groat]

rockin said:

Groat said:

Why are you so obsessed with tax? You're letting the tail wag the dog too much.

Au contraire, mon ami. I'm obsessed with "flexibility". A well diversified portfolio that I can chop, change and spend whenever I like is what floats my boat.

What I find so challenging are the "transaction costs" around property these days, particularly as the whole regime works as a "South of England Tax". Anyone who has, for instance, a second home in London is essentially boxed in tight. For many, simply moving to the identical house next door could generate a tax bill of at least £200,000 in a combination of CGT and Stamp Duty!

......which is less than half the cost of filling a superyacht with fuel.

Aren't rich people's bills awful!!

ETA: Other than on the smallest scale, don't all these chops changes and spends of anything apart from ISAs create endless taxable events? And how exactly does one spend anything invested in a pension or even pay a bill or two from its appreciation?

Edited by Groat on Friday 5th March 17:33

[anonymous-user]

Groat said:

....which is less than half the cost of filling a superyacht with fuel.

Since you're so remarkably well informed in these matters I anticipate you'll be inviting Finance Forum regulars to join you on your yacht down at Antibes once lockdown comes ends, for practical purposes, on 17 May. Hell, we could even burn some of that diesel pottering round to Monaco for the Grand Prix on Sunday 23rd!

Mind you, Julian's super-cruiser will probably be blocking the harbour entrance...

[NickCQ]

Groat said:

ETA: Other than on the smallest scale, don't all these chops changes and spends of anything apart from ISAs create endless taxable events?

For the majority of people a £40k pa couple's ISA allowance is more than enough not to have to bother investing in non-tax-advantaged ways.

[JuanCarlosFandango]

Interesting thread.

I've looked into this and the BTL market seems pretty fraught and crowded. Though obviously some people are still making money.

FHLs look more interesting to me, but the situation with council tax or rates seems a bit unclear. Can anyone point me to a good clear rundown on this?

[98elise]

gibbon said:

The debate on here seems to be quite binary, ISA / pension versus property.

The truth to me, its rarely such.

People investing large sums in BTL are likely high income / worth / both individuals. The tax changes for BTL and the lending changes have been designed I believe to stop private leveraged up speculators from dabbling too much in BTL, and getting themselves in a mess, and subsequently others into their mess.

For some people (I know a small minority, but lets be honest, we are talking about a minority already here with talk of property investments etc) once you have filled your £20k ISA annually, and your £10k annual SIPP contribution, then property can make sense. You have the upside of capital growth, you have the usability of a tangible asset for future downsizing / kids use / parents retirement use / holiday lets, pick as appropriate for your situation and desires, and a flexible income.

If you are lucky enough to have the income / wealth, and you plan to have 1/3 SIPP, 1/3 ISA, 1/3 property outside of your main residence, then that is not a silly thing to be broadly aiming at.

If you have no cash reserves and limited pension, and are sticking £20k into a BTL and are worried about needed the tax relief just to make the books balance, i would suggest other savings and investment options may be better suited to you.

Edited by gibbon on Friday 5th March 10:46

I'm split 50/50 Property vs ISA/SIPP. It's a good balance.

[blueg33]

JuanCarlosFandango said:

Interesting thread.

I've looked into this and the BTL market seems pretty fraught and crowded. Though obviously some people are still making money.

FHLs look more interesting to me, but the situation with council tax or rates seems a bit unclear. Can anyone point me to a good clear rundown on this?

Most of the holiday let companies have info in their owners area - Look at Sykes and Classic.co.uk

[Ahonen]

JuanCarlosFandango said:

Interesting thread.

I've looked into this and the BTL market seems pretty fraught and crowded. Though obviously some people are still making money.

FHLs look more interesting to me, but the situation with council tax or rates seems a bit unclear. Can anyone point me to a good clear rundown on this?

Same here. We've been looking at BTL as more of a longer term investment, where the money would chiefly be made after selling it/them in 20 years time, but it's looking increasingly unattractive these days.

Our other option was looking into a holiday let in France but that seems fraught with potential issues too.

[chinnyman]

I'm a pension person myself due to tax.

I do have one BTL.

Aren't some of the calculations in this thread a little incorrect.
Rental yield of the property price may be low but if you look at the yield from what you ah e actually paid...

[blueg33]

chinnyman said:

I'm a pension person myself due to tax.

I do have one BTL.

Aren't some of the calculations in this thread a little incorrect.
Rental yield of the property price may be low but if you look at the yield from what you ah e actually paid...

Yes. Typically you look at net initial yield and IRR/ROCE over time. ROCE is helped by gearing (borrowing)