Is BTL still possible?

[troika]

Phooey said:

troika said:

Oh, and I’m not leveraged. If I was I don’t think it would stack up, net yield 3% assuming no voids or unexpected costs.

I think it depends on your circumstances. But I think using a mortgage whilst interest rates are this low isn’t a bad way of taking advantage of cheap borrowing to return you a fully paid-up property.

So you lock in debt at record asset prices and zero interest rates. It would take decades to pay off the capital. When IR’s rise that won’t look very good at all.

‘House prices are a matter of opinion whereas debt is real’ - Mervyn King

Edited by troika on Saturday 21st August 23:22

[dmahon]

troika said:

So you lock in debt at record asset prices and zero interest rates. It would take decades to pay off the capital. When IR’s rise that won’t look very good at all.

‘House prices are a matter of opinion whereas debt is real’ - Mervyn King

Edited by troika on Saturday 21st August 23:22

Locking in the debt and low interest rates are the key words. I’m looking at taking out a few 5 year fix @ 1.9%. That will cashflow really well and doesn’t seem like a lot of downside risk. I have some rentals with 20+ bidders so don’t see the arse falling out of the rental market any time soon.

[LooneyTunes]

troika said:

So you lock in debt at record asset prices and zero interest rates. It would take decades to pay off the capital. When IR’s rise that won’t look very good at all.

‘House prices are a matter of opinion whereas debt is real’ - Mervyn King

Depends on what happens with inflation… CPI backed off a bit but there is still a lot of coverage around labour market shortages driving wage increases and simple observation suggests that prices of goods/services outside the CPI basket seem to have taken a good jump recently.

[troika]

dmahon said:

Locking in the debt and low interest rates are the key words. I’m looking at taking out a few 5 year fix @ 1.9%. That will cashflow really well and doesn’t seem like a lot of downside risk. I have some rentals with 20+ bidders so don’t see the arse falling out of the rental market any time soon.

Record asset prices and zero interest rates are the key words for me.

[klan8456]

I don’t know how landlords make any money.

To use a real life example from London:

Purchase price £685k
Stamp duty: £40k (second home)
Legal fees & expenses: £3k
Total acquisition cost: £730k

Rent: £1733 per month
Agency fee: assume 10%
Minus income tax 45%
Minus interest expense (assume there is a mortgage)
+ maintenance, depreciation
+ service charge and ground rent £6k p.a.

It just doesn’t make any sense. Surely far better putting the money into an index tracker, which is also completely liquid.

Edited by klan8456 on Sunday 22 August 17:25

[klan8456]

Welshbeef said:

People want houses not flats.

Sadly developers have been building high rise flats for a long time and continue to do so. A house with garden is better than a flat in every possible way

It is certainly not. We would never live in a house around here, you’d have the windows smashed in with a week. Much safer a couple of dozen stories up, in a secure gated complex with 24/7 security patrols.

[BoRED S2upid]

klan8456 said:

I don’t know how landlords make any money.

To use a real life example from London:

Purchase price £685k
Stamp duty: £40k (second home)
Legal fees & expenses: £3k
Total acquisition cost: £730k

Rent: £1733 per month
Agency fee: assume 10%
Minus income tax 45%
Minus interest expense (assume there is a mortgage)
+ maintenance, depreciation
+ service charge and ground rent £6k p.a.

It just doesn’t make any sense. Surely far better putting the money into an index tracker, which is also completely liquid.

Edited by klan8456 on Sunday 22 August 17:25

In London I’m guessing they aren’t paying 45% tax and relying on a couple percent a year increase on that £730,000. Which of course you are not going to get in your index tracker because you don’t have £730k to put into it. It’s all about the leverage.

[dmahon]

London yields are generally too low and it’s too capital intensive.

Here are the figures I’m looking at which have a decent return.

280k purchase including stamp
70k deposit
£350 IO Mortage
£1050 Rent
£100 Agent Fees
£600 Profit
~10% Gross Yield

I own other properties in this postcode and have had no drama, no maintenance, good capital gains, 5-10 good applicants per property.

Don’t really want to get into another debate about BTL, but it feels pretty easy money from where I’m sitting? Where else can you get 10% return before capital gain?

Edit - I see you’ve accounted for tax. I view that as a fact of life whatever you invest in it however you earn money. It can also be quite easily mitigated using a LTD company, directors loans, splitting ownership with the wife etc. If I was paying 45% on the net income I agree it would be far less attractive.

Edited by dmahon on Sunday 22 August 18:41

Edited by dmahon on Sunday 22 August 18:45

[RanchoGrande]

If you haven't got at least one BTL then you're not a proper PH'er, so you may as well get one just so you can tell people on the Internet that you have one...

In all seriousness, what has happened to the market? You hear that there is nothing to rent and nothing to buy, are people sitting tight or what? I feel blessed that I managed to buy earlier this year, after a 2 year search!

[BoRED S2upid]

RanchoGrande said:

If you haven't got at least one BTL then you're not a proper PH'er, so you may as well get one just so you can tell people on the Internet that you have one...

In all seriousness, what has happened to the market? You hear that there is nothing to rent and nothing to buy, are people sitting tight or what? I feel blessed that I managed to buy earlier this year, after a 2 year search!

Yeah people are sitting right. My tenants are into their 5th year.

[klan8456]

BoRED S2upid said:

In London I’m guessing they aren’t paying 45% tax and relying on a couple percent a year increase on that £730,000. Which of course you are not going to get in your index tracker because you don’t have £730k to put into it. It’s all about the leverage.

Doubt there will be much capital appreciation in London. Most places around here have dropped over the past few years since the Brexit vote. Lots of people selling at a loss after 4 - 5 years. Paying the extra stamp duty certainly wouldn’t help, either.

Edited by klan8456 on Sunday 22 August 19:00

[klan8456]

dmahon said:

Edit - I see you’ve accounted for tax. I view that as a fact of life whatever you invest in it however you earn money. It can also be quite easily mitigated using a LTD company, directors loans, splitting ownership with the wife etc. If I was paying 45% on the net income I agree it would be far less attractive.

Edited by dmahon on Sunday 22 August 18:41

Edited by dmahon on Sunday 22 August 18:45

As I understand it, if the rent is £2k a month, you have to pay 45% tax on that, THEN agent fees, maintenance. Insurance, mortgage expense etc. Or is the tax only paid on the net profit?

[Mr Whippy]

klan8456 said:

As I understand it, if the rent is £2k a month, you have to pay 45% tax on that, THEN agent fees, maintenance. Insurance, mortgage expense etc. Or is the tax only paid on the net profit?

It’s taxed profits after expenses, and taxed at your personal rate.

Ie, if your wife doesn’t work or have any other income, and you make £13,000 ish a year after expenses, there will be no tax to pay.

Of course she’d have to own it all in her name iirc, which could then make cap gains worse later... swings and roundabouts.

[98elise]

dmahon said:

London yields are generally too low and it’s too capital intensive.

Here are the figures I’m looking at which have a decent return.

280k purchase including stamp
70k deposit
£350 IO Mortage
£1050 Rent
£100 Agent Fees
£600 Profit
~10% Gross Yield

I own other properties in this postcode and have had no drama, no maintenance, good capital gains, 5-10 good applicants per property.

Don’t really want to get into another debate about BTL, but it feels pretty easy money from where I’m sitting? Where else can you get 10% return before capital gain?

Edit - I see you’ve accounted for tax. I view that as a fact of life whatever you invest in it however you earn money. It can also be quite easily mitigated using a LTD company, directors loans, splitting ownership with the wife etc. If I was paying 45% on the net income I agree it would be far less attractive.

Edited by dmahon on Sunday 22 August 18:41

Edited by dmahon on Sunday 22 August 18:45

How do the numbers look if you're a high rate tax payer and cannot offset the whole mortgage?

[dmahon]

98elise said:

How do the numbers look if you're a high rate tax payer and cannot offset the whole mortgage?

In that case it is less attractive I guess, but taxes are a fact of life and I think orthogonal to BTL as an investment class.

The 10% yield I posted above is a real example of making money with BTL. With the right setup (LTD company, no PAYE exposure, directors loans, income splitting with your wife), you can extract that at < 20% tax.

[Phooey]

dmahon said:

£350 IO Mortage

If you don't mind me asking - any reason for going IO rather than repayment and do you know how much the payment would be on an a repayment mortgage? cheers

[dmahon]

Phooey said:

If you don't mind me asking - any reason for going IO rather than repayment and do you know how much the payment would be on an a repayment mortgage? cheers

This is why BTL works. You are borrowing lots of other peoples money at < 2% and getting > 5% yield on it.

Sarnie mentioned recently that 9 out of 10 mortgages he does for BTL are IO. It is really key to the whole model even though it is counterintuitive to use debt to make money.

With the £650 “profit”, you could spend it, pay it off the capital, or invest elsewhere. In a way it’s just a flexibility thing in that you don’t have to make the repayment, but can if you like. IO is kind of a free option.

I haven’t checked, but suspect a repayment mortgage would be around £1000. Maybe you would even need to contribute £50 if you don’t break even, but of course someone else is paying off your mortgage.

So to answer the original question, I think BTL is still possible and highly profitable when you use leverage and have the right structure to operate within.

As I’ve posted on here before, I spent a decade posting on House Price Crash, passionately believing the market should and would fall. I still think BTL is pretty unethical. I do however think the market is totally rigged and I’d rather be on the governments/banks side than being on the opposite of the trade.

Edited by dmahon on Sunday 22 August 20:04

Edited by dmahon on Sunday 22 August 20:06

[Centurion07]

klan8456 said:

I don’t know how landlords make any money.

To use a real life example from London:

Purchase price £685k
Stamp duty: £40k (second home)
Legal fees & expenses: £3k
Total acquisition cost: £730k

Rent: £1733 per month
Agency fee: assume 10%
Minus income tax 45%
Minus interest expense (assume there is a mortgage)
+ maintenance, depreciation
+ service charge and ground rent £6k p.a.

It just doesn’t make any sense. Surely far better putting the money into an index tracker, which is also completely liquid.

Edited by klan8456 on Sunday 22 August 17:25

You could get that kind of monthly income from just two properties for HALF that total outlay in my area.

I'm no expert but I don't think London is particularly representative of the majority of the rest of the country.

[Phooey]

dmahon said:

This is why BTL works. You are borrowing lots of other peoples money at < 2% and getting > 5% yield on it.

Sarnie mentioned recently that 9 out of 10 mortgages he does for BTL are IO. It is really key to the whole model even though it is counterintuitive to use debt to make money.

With the £650 “profit”, you could spend it, pay it off the capital, or invest elsewhere. In a way it’s just a flexibility thing in that you don’t have to make the repayment, but can if you like. IO is kind of a free option.

I haven’t checked, but suspect a repayment mortgage would be around £1000. Maybe you would even need to contribute £50 if you don’t break even, but of course someone else is paying off your mortgage.

So to answer the original question, I think BTL is still possible and highly profitable when you use leverage and have the right structure to operate within.

As I’ve posted on here before, I spent a decade posting on House Price Crash, passionately believing the market should and would fall. I still think BTL is pretty unethical. I do however think the market is totally rigged and I’d rather be on the governments/banks side than being on the opposite of the trade.

Edited by dmahon on Sunday 22 August 20:04

Edited by dmahon on Sunday 22 August 20:06

Thanks. I get what you’re saying and I do hear mostly of the idea of IO. The numbers obviously stack up well for you and it’s definitely an interesting thought. X by 5 and it’s quite a profitable business. I have this thing in my head though that I like to own the asset at the end of the term.

[Groat]

Centurion07 said:

You could get that kind of monthly income from just two properties for HALF that total outlay in my area.

I'm no expert but I don't think London is particularly representative of the majority of the rest of the country.

I've just bought one for £55k. https://www.quicksalepropertyauctions.com/property...

By the time it's ready to let (£650pcm) it'll have cost £70k.

(No loans thanks. Prefer not to share the profit).

Eta: The people I bought it from paid £35k for it in mid-June

Edited by Groat on Monday 23 August 00:44