Is BTL still possible?
Discussion
Over the long term, property is always a pretty safe bet. OK, i don't think you'll see the capital appreciation across the next 15 years as you've seen in the last - but given the population keeps expanding, who knows.
Fact of the matter is that we live in the world of pretty much zero interest rates and mortgage rates are at an all time low. A £300k property with a £150k interest only mortgage of 1.25% means circa £200 per month (plus purchase costs such as SD, ongoing management, etc) but the rental figure is going to be around £1200 per month. £1k per month minus tax and costs. Either use as income or use all surplus to overpay mortgage debt. Obviously if you're a higher rate tax payer this is quite a tax burden but you'll still see a much higher return than if the money was in any high street savings account / NS&I etc
This is why BTL still works (caveat being, you have very high deposits available)
Fact of the matter is that we live in the world of pretty much zero interest rates and mortgage rates are at an all time low. A £300k property with a £150k interest only mortgage of 1.25% means circa £200 per month (plus purchase costs such as SD, ongoing management, etc) but the rental figure is going to be around £1200 per month. £1k per month minus tax and costs. Either use as income or use all surplus to overpay mortgage debt. Obviously if you're a higher rate tax payer this is quite a tax burden but you'll still see a much higher return than if the money was in any high street savings account / NS&I etc
This is why BTL still works (caveat being, you have very high deposits available)
Edited by Candellara on Tuesday 27th July 16:54
Candellara said:
Over the long term, property is always a pretty safe bet. OK, i don't think you'll see the capital appreciation across the next 15 years as you've seen in the last - but given the population keeps expanding, who knows.
I’d take a slightly different view on the scope for capital appreciation, but resulting mainly from inflation. Ok, it’s not “real” capital appreciation and may not be quite as pronounced as the increases seen as a result of easy credit but it does mean your returns remain worth something long into the future which, for me, is a large part of what makes the effort worth it.Like all investments the devil is in the detail as others have stated.
This is worth a follow/read https://www.pistonheads.com/gassing/topic.asp?h=0&...
This is worth a follow/read https://www.pistonheads.com/gassing/topic.asp?h=0&...
BTL only works if it is heavily geared and there is property inflation ~ remember this is high risk position because a modest movement down will rip through your equity
A non-geared BTL does not produce an acceptable yield in my opinion and is based on my 30 years of investing in property
However, I accept that the monetary return is not everything and there is something comforting about an investment that you can touch, see and walk around and if it delivers a lower yield that is the price one pays for that comfort
A non-geared BTL does not produce an acceptable yield in my opinion and is based on my 30 years of investing in property
However, I accept that the monetary return is not everything and there is something comforting about an investment that you can touch, see and walk around and if it delivers a lower yield that is the price one pays for that comfort
Numpty with honours said:
BTL only works if it is heavily geared and there is property inflation ~ remember this is high risk position because a modest movement down will rip through your equity
A non-geared BTL does not produce an acceptable yield in my opinion and is based on my 30 years of investing in property
However, I accept that the monetary return is not everything and there is something comforting about an investment that you can touch, see and walk around and if it delivers a lower yield that is the price one pays for that comfort
Have you really been investing in property 30 yrs as some of your assertions are rather questionableA non-geared BTL does not produce an acceptable yield in my opinion and is based on my 30 years of investing in property
However, I accept that the monetary return is not everything and there is something comforting about an investment that you can touch, see and walk around and if it delivers a lower yield that is the price one pays for that comfort
Yes I have
The rental yield when all costs are factored in, including the return you forgo on the equity you put in, is not worthwhile. You are taking a punt on property inflation
I own a large portfolio of ground rents and over the years have bought various flats in South London when the price appeared cheap. I should have flipped the flats and invested in my core business - the return on the flats has underperformed. If I had geared the flats up I would have made more money BUT I would have taken on more risk.
The point is that when you gear up a property you need to up the rate of return when evaluating it, not just because of the interest payment but because of the risk you are taking. Many BTL investors do not appreciate the dangers of gearing, they see it as a one way bet that prices always rise
The rental yield when all costs are factored in, including the return you forgo on the equity you put in, is not worthwhile. You are taking a punt on property inflation
I own a large portfolio of ground rents and over the years have bought various flats in South London when the price appeared cheap. I should have flipped the flats and invested in my core business - the return on the flats has underperformed. If I had geared the flats up I would have made more money BUT I would have taken on more risk.
The point is that when you gear up a property you need to up the rate of return when evaluating it, not just because of the interest payment but because of the risk you are taking. Many BTL investors do not appreciate the dangers of gearing, they see it as a one way bet that prices always rise
Numpty with honours said:
Yes I have
The rental yield when all costs are factored in, including the return you forgo on the equity you put in, is not worthwhile. You are taking a punt on property inflation
I own a large portfolio of ground rents and over the years have bought various flats in South London when the price appeared cheap. I should have flipped the flats and invested in my core business - the return on the flats has underperformed. If I had geared the flats up I would have made more money BUT I would have taken on more risk.
The point is that when you gear up a property you need to up the rate of return when evaluating it, not just because of the interest payment but because of the risk you are taking. Many BTL investors do not appreciate the dangers of gearing, they see it as a one way bet that prices always rise
Agree with comments about leverage (personally I think some people cut things very fine when their ability to cope with adverse events is considered), but less convinced by cost of capital argument. The rental yield when all costs are factored in, including the return you forgo on the equity you put in, is not worthwhile. You are taking a punt on property inflation
I own a large portfolio of ground rents and over the years have bought various flats in South London when the price appeared cheap. I should have flipped the flats and invested in my core business - the return on the flats has underperformed. If I had geared the flats up I would have made more money BUT I would have taken on more risk.
The point is that when you gear up a property you need to up the rate of return when evaluating it, not just because of the interest payment but because of the risk you are taking. Many BTL investors do not appreciate the dangers of gearing, they see it as a one way bet that prices always rise
Risk free rate is basically zero at present (negative by the time you take inflation into account) and most people don’t tend to have a “core” business that can genuinely scale it’s returns simply as a result of pumping more spare cash in. If you do, and can live with the concentration, then great… but for most people it ends up being a decision around whether the difference between more passive investment (into funds etc) is a better overall proposition. I get pitched regularly and, whilst I have some money in funds, the case for funds instead of property has never been compelling (and that’s based on any property value increase being a bonus).
red_slr said:
I got out in 2019.
Returns of c.6% and I was looking at a good £15-20k refresh of the property very soon.
Decided to sell and glad I did.
Thats just a sample size of 1 though.
£15-20k is kind of meaningless without knowing a bit about the property value. I’m taking on one that will need (1/3 of purchase price) spending on major renovation work but it’ll add at least 2x that to the asset value and generate at least 75% more in rent. Returns of c.6% and I was looking at a good £15-20k refresh of the property very soon.
Decided to sell and glad I did.
Thats just a sample size of 1 though.
Numpty with honours said:
BTL only works if it is heavily geared and there is property inflation ~ remember this is high risk position because a modest movement down will rip through your equity
A non-geared BTL does not produce an acceptable yield in my opinion and is based on my 30 years of investing in property
However, I accept that the monetary return is not everything and there is something comforting about an investment that you can touch, see and walk around and if it delivers a lower yield that is the price one pays for that comfort
I disagree as I’m sure Groat does. Geared or not property inflation or not it can still work and give you decent returns. £100k invested in a single property bought outright will give you say a 6% return that £100k invested in a bank account will return nothing so the only other choice really is S&S which can decrease and may not match the 6% the property might return. A non-geared BTL does not produce an acceptable yield in my opinion and is based on my 30 years of investing in property
However, I accept that the monetary return is not everything and there is something comforting about an investment that you can touch, see and walk around and if it delivers a lower yield that is the price one pays for that comfort
So yes it can still work. I personally see it as balancing my investments - property, S&S, cash. I’m probably too heavily weighted to property but I’m happy with that.
[cheesy American TV advert voice] Do you like paying tax? Do you love giving your money to the government? Do you wish to fund the NHS more than you already do? If so YOU are the perfect investor in the buy to let market. Let me show you how you can pay; an additional 5% stamp duty; up to 40% of your rental income as tax, and finally an additional chunk when you die or sell! [/cheesey American TV advert voice]
Now, the above is somewhat tongue in cheek, as there are ways to reduce your tax bill, and if you are a basic rate taxpayer then the hit isn't too bad, but if you are doing it as a higher rate paying individual (not a company structure), then it is a very tax inefficient way to invest or accumulate.
Now, the above is somewhat tongue in cheek, as there are ways to reduce your tax bill, and if you are a basic rate taxpayer then the hit isn't too bad, but if you are doing it as a higher rate paying individual (not a company structure), then it is a very tax inefficient way to invest or accumulate.
I see we have the usual BTL vs S&S argument!
For the record, I think having your finger in both pies is a solid strategy. Does the below fairly summarise the similarities and differences?
I know we have resident experts in both fields, but let's assume we're talking about people with £150k or 2/3 properties.
S&S Funds (note funds, not individual stock selection as this would require time invested)
Capital (share price) could go up or down - historic trends suggest they go up
Income (dividends) can be increased, decreased or stopped altogether.
Low cost of entry (You can open a Vanguard with <£100)
Ongoing costs are sub 1% (some people choose to pay more - they don't need to)
Entirely passive
Capital can (typically) be liquified within 10 days
Capital profits are subject to 20% GCT once over the £12K allowance when sold (all gains in ISAs are tax free, GIA investments can be 'bed and breakfasted to benefit from the £12k CGT allowance each year)
Dividend income is subject to income tax
Property
Capital (house price) could go up or down - historic trends suggest they go up
Income (rent) can be increased or decreased (market demands) or stopped altogether (void periods).
Higher cost of entry (deposit, conveyancing, surveys, mortgage fees)
Ongoing costs are typically higher and can be unknown (squatting tenant, unexpected cost such as a leaky roof repair could wipe profits). I hear a rule of thumb is 1 month void and 1% property price?
Passive with good tenants, incredibly active if things go south.
Lots of leverage available
Unknown timescales to liquify capital - is 5 months a fair balance?
Higher Capital gains tax of capital appreciation @ 28%
Rental income is subject to income tax (unless gearing or within a company, whereby corp tax payable)
For the record, I think having your finger in both pies is a solid strategy. Does the below fairly summarise the similarities and differences?
I know we have resident experts in both fields, but let's assume we're talking about people with £150k or 2/3 properties.
S&S Funds (note funds, not individual stock selection as this would require time invested)
Capital (share price) could go up or down - historic trends suggest they go up
Income (dividends) can be increased, decreased or stopped altogether.
Low cost of entry (You can open a Vanguard with <£100)
Ongoing costs are sub 1% (some people choose to pay more - they don't need to)
Entirely passive
Capital can (typically) be liquified within 10 days
Capital profits are subject to 20% GCT once over the £12K allowance when sold (all gains in ISAs are tax free, GIA investments can be 'bed and breakfasted to benefit from the £12k CGT allowance each year)
Dividend income is subject to income tax
Property
Capital (house price) could go up or down - historic trends suggest they go up
Income (rent) can be increased or decreased (market demands) or stopped altogether (void periods).
Higher cost of entry (deposit, conveyancing, surveys, mortgage fees)
Ongoing costs are typically higher and can be unknown (squatting tenant, unexpected cost such as a leaky roof repair could wipe profits). I hear a rule of thumb is 1 month void and 1% property price?
Passive with good tenants, incredibly active if things go south.
Lots of leverage available
Unknown timescales to liquify capital - is 5 months a fair balance?
Higher Capital gains tax of capital appreciation @ 28%
Rental income is subject to income tax (unless gearing or within a company, whereby corp tax payable)
Groat, assuming the logic behind spending the profit is to buy new properties (or invest in the ones you have to increase capital, i.e. extensions), how do you get the money out in the end? You've mentioned income a few times as a benefit to property investment over S&S, so curious how it plays out if you have to keep spending it (it feels the same as a dividend which is reinvested?)
In terms of exit strategy, is ent relief available? Build portfolio and eventually sell (CGT with a small amount of income tax)? Diversify portfolio into another product/service which doesn't attract 28% and then sell that at 20%? (I'm making this up, probably not possible)
In terms of exit strategy, is ent relief available? Build portfolio and eventually sell (CGT with a small amount of income tax)? Diversify portfolio into another product/service which doesn't attract 28% and then sell that at 20%? (I'm making this up, probably not possible)
Groat said:
Guys, workaround tax strategies aren't exactly rocket science.
But the thread title is "Is BTL still possible"?
Like it or not, the answer, pretty obviously, is 'YES'.
Would you mind if I PM you about this at some point?But the thread title is "Is BTL still possible"?
Like it or not, the answer, pretty obviously, is 'YES'.
I'm keen to explore BTL in a couple of years time (I almost bit the bullet a couple of years ago but have since put into S&S) and once I've hit S&S milestone I'll want/need to diversify
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