Discussion
JuanCarlosFandango said:
If you had bought a £100k house instead and used the rent to pay the mortgage and maintain the property, then without taking a penny out you'd have just about cleared the mortgage and have a £350k house.
Does this stand up to scrutiny, keen to see a more detailed breakdown, if you wouldn't mind?DoubleSix said:
Respectfully, i’m not inclined to delve into the right wrongs of your post. Bit of a busman’s holiday for me.
Lets just say i own all the assets that are being discussed here, however I do so objectively and make it my business to understand both the detail and the high level arguments.
The issue is, and i see this a lot, the BTL zealots don’t properly understand the alternatives and default to property as a result. You could argue they don’t understand property very well either… but lets be kind
Respectfully, I kind of get the feeling that you've never built a business of your own. The kind where your name's on the door and people are employed to work and manage and even direct it and your job's mostly to keep the fLets just say i own all the assets that are being discussed here, however I do so objectively and make it my business to understand both the detail and the high level arguments.
The issue is, and i see this a lot, the BTL zealots don’t properly understand the alternatives and default to property as a result. You could argue they don’t understand property very well either… but lets be kind
k out of the way and let them get on with it plus watch that neither any of them nor anybody else rips you off?I'm sure you've worked in them in one capacity or another but have you ever owned an asset like that? I doubt it mate. Am I right?
Portia5 said:
Usually (or often, at least) s&s are bought with already-taxed earnings. Some of them then get taxed again on liquidation.
Whereas property may be bought with 100% debt which may, along with its costs, then be paid off by its rental income, after which all its gains are "free money" by PH logic.
Time passes, rent rises, values rise. Not 'guaranteed' but not far off.
For an asset that cost no "hurt" money?
That'll do me.
You aren't wrong, but you over simplify. Whereas property may be bought with 100% debt which may, along with its costs, then be paid off by its rental income, after which all its gains are "free money" by PH logic.
Time passes, rent rises, values rise. Not 'guaranteed' but not far off.
For an asset that cost no "hurt" money?
That'll do me.
With "Just" £39k of taxed income, we leveraged the purchase of a nice ex council 3 bed semi. Which cost £130k We spent 3 weekends preparing it, and used open rent to find tenants. 8 years and on the third tenant, we used part of an inheritance to pay off the remaining mortgage £63k. (With interest rates going up, it made no sense to us to remortgage at 7% when we could only get 5% on the cash)
Recently I looked at house prices of similar houses and £210 k is possible. £200k more likely.
So effectively we have invested £102k and if we got out now could have doubled our money.
Or we can continue to rent it out for £9000 a year. Return on equity is actually now a bit s
t. 4.5%Or maybe Return on our total investment is 9%
The questions we wish we could answer are how long will interest rates remain at the current level? If they are staying at 5% for the next 20 years, then we might as well sell.
How much higher can the rent go? We are currently undercharging. We could get £12k a year, and if the current tenant leaves, that's what we will target.
What repairs are going to be needed? How long is a peice of string?
What will prices do? Have they stalled ? Unlikely.
I've obviously ignored Tax. Through the use of Form.17, my wife who does not work, can make use of her tax allowance. We use the current rent to pay more into my pension, thus saving me tax at 40% and Ni at 7% (is that the current rate ?) Effectively the rent we get is worth £16k into my pension pot.
As I say you need a spreadsheet. And assumptions.
Tim Cognito said:
JuanCarlosFandango said:
If you had bought a £100k house instead and used the rent to pay the mortgage and maintain the property, then without taking a penny out you'd have just about cleared the mortgage and have a £350k house.
Does this stand up to scrutiny, keen to see a more detailed breakdown, if you wouldn't mind?https://landregistry.data.gov.uk/app/ukhpi/browse?...
Assuming you had £75k on a 25 year mortgage you'd still have a year to go at about £400 a month.
You can find plenty of caveats or horror scenarios:
Having to spend £20k on a new roof early on could have wiped you out or forced your to borrow at high rates.
It could have sat empty for a year.
It could be in some awful sink area or have had a motorway built over the top of it and now be worth less.
There's also the fluke in this case that this was just before the property market really took off and it was the height of the dot com bubble. Timing is important.
Lastly of course there is the ever true qualification that the past is not the future and it's quite possible in another 25 years we will be looking at abandoned houses with trees growing out of the roof marvelling that people paid 3 or 4 years salary for these things. Or that energy/environment policies will require owners and landlords especially to spend thousands, or that more tax changes will make the whole thing unviable. And we might not have the years of low interest rates.
JuanCarlosFandango said:
Tim Cognito said:
JuanCarlosFandango said:
If you had bought a £100k house instead and used the rent to pay the mortgage and maintain the property, then without taking a penny out you'd have just about cleared the mortgage and have a £350k house.
Does this stand up to scrutiny, keen to see a more detailed breakdown, if you wouldn't mind?https://landregistry.data.gov.uk/app/ukhpi/browse?...
Assuming you had £75k on a 25 year mortgage you'd still have a year to go at about £400 a month.
You can find plenty of caveats or horror scenarios:
Having to spend £20k on a new roof early on could have wiped you out or forced your to borrow at high rates.
It could have sat empty for a year.
It could be in some awful sink area or have had a motorway built over the top of it and now be worth less.
There's also the fluke in this case that this was just before the property market really took off and it was the height of the dot com bubble. Timing is important.
Lastly of course there is the ever true qualification that the past is not the future and it's quite possible in another 25 years we will be looking at abandoned houses with trees growing out of the roof marvelling that people paid 3 or 4 years salary for these things. Or that energy/environment policies will require owners and landlords especially to spend thousands, or that more tax changes will make the whole thing unviable. And we might not have the years of low interest rates.
People often do not realise that if you pile all of the rent back in to a capital and interest mortgage you would have seen probably little or no cash flow to take as income but HMRC still want income tax on the rental profit which used to be the capital element of the mortgage payment.
Using the rent to pay off the mortgage to zero doesn't leave much for rental voids, new boilers, re-decoration every 5 years, new carpets, gas safety checks, agent fees, elec safety checks or any other maintenance or insurances.
The majority of buy to lets that we arranged like the above would have needed monthly contributions from the owners.
How do you then access your supposed £350k at the end - sell it and pay an estate agent, solicitor and 40% Capital Gains Tax or do you bung another mortgage on it and then pay mortgage payments all over again?
Property had been a great appreciator over the last 30+ years, I have really enjoyed it but that does not mean that history will continue to repeat itself. Property was OK in the 50-60s but it wasn't really until the later 70's that things started to really motor...this could have been the golden years for all we know.
In conclusion I think it is not wise to automatically assume that property is always the slam dunk answer and as i have said many times on PH we need to compare alternatives net with net and consider liquidity etc.
Pit Pony said:
Portia5 said:
Usually (or often, at least) s&s are bought with already-taxed earnings. Some of them then get taxed again on liquidation.
Whereas property may be bought with 100% debt which may, along with its costs, then be paid off by its rental income, after which all its gains are "free money" by PH logic.
Time passes, rent rises, values rise. Not 'guaranteed' but not far off.
For an asset that cost no "hurt" money?
That'll do me.
You aren't wrong, but you over simplify. Whereas property may be bought with 100% debt which may, along with its costs, then be paid off by its rental income, after which all its gains are "free money" by PH logic.
Time passes, rent rises, values rise. Not 'guaranteed' but not far off.
For an asset that cost no "hurt" money?
That'll do me.
With "Just" £39k of taxed income, we leveraged the purchase of a nice ex council 3 bed semi. Which cost £130k We spent 3 weekends preparing it, and used open rent to find tenants. 8 years and on the third tenant, we used part of an inheritance to pay off the remaining mortgage £63k. (With interest rates going up, it made no sense to us to remortgage at 7% when we could only get 5% on the cash)
Recently I looked at house prices of similar houses and £210 k is possible. £200k more likely.
So effectively we have invested £102k and if we got out now could have doubled our money.
Or we can continue to rent it out for £9000 a year. Return on equity is actually now a bit s
t. 4.5%Or maybe Return on our total investment is 9%
The questions we wish we could answer are how long will interest rates remain at the current level? If they are staying at 5% for the next 20 years, then we might as well sell.
How much higher can the rent go? We are currently undercharging. We could get £12k a year, and if the current tenant leaves, that's what we will target.
What repairs are going to be needed? How long is a peice of string?
What will prices do? Have they stalled ? Unlikely.
I've obviously ignored Tax. Through the use of Form.17, my wife who does not work, can make use of her tax allowance. We use the current rent to pay more into my pension, thus saving me tax at 40% and Ni at 7% (is that the current rate ?) Effectively the rent we get is worth £16k into my pension pot.
As I say you need a spreadsheet. And assumptions.
IMHO this (government tax policy) ties up a lot of property (in unproductive capital) which could be helping to solve the housing crisis for the young.
Tim Cognito said:
JuanCarlosFandango said:
If you had bought a £100k house instead and used the rent to pay the mortgage and maintain the property, then without taking a penny out you'd have just about cleared the mortgage and have a £350k house.
Does this stand up to scrutiny, keen to see a more detailed breakdown, if you wouldn't mind?Maybe in the South?
BoRED S2upid said:
Tim Cognito said:
JuanCarlosFandango said:
If you had bought a £100k house instead and used the rent to pay the mortgage and maintain the property, then without taking a penny out you'd have just about cleared the mortgage and have a £350k house.
Does this stand up to scrutiny, keen to see a more detailed breakdown, if you wouldn't mind?Maybe in the South?
BoRED S2upid said:
£100k to £350k in 25 years I’m sure it’s accurate somewhere in the U.K. not questioning that it would easily be mortgage free but that’s some massive growth. One of mine has done 2/3rds of that in the same period.
Maybe in the South?
It was more whether you would be able to clear a 75k mortgage using only rent after fees, tax, repairs, maintenance, void periods etc etc Maybe in the South?
Tim Cognito said:
BoRED S2upid said:
£100k to £350k in 25 years I’m sure it’s accurate somewhere in the U.K. not questioning that it would easily be mortgage free but that’s some massive growth. One of mine has done 2/3rds of that in the same period.
Maybe in the South?
It was more whether you would be able to clear a 75k mortgage using only rent after fees, tax, repairs, maintenance, void periods etc etc Maybe in the South?
So yes I recon it’s repaid and you are sitting on a hearty CGT bill if you sell.
Caddyshack said:
Yes, that £75k mortgage assuming you had £25 deposit for a residential BTL would have cost 133,500 in mortgage payments assuming an average 5% - that is leaving out product renewal fees.
People often do not realise that if you pile all of the rent back in to a capital and interest mortgage you would have seen probably little or no cash flow to take as income but HMRC still want income tax on the rental profit which used to be the capital element of the mortgage payment.
Using the rent to pay off the mortgage to zero doesn't leave much for rental voids, new boilers, re-decoration every 5 years, new carpets, gas safety checks, agent fees, elec safety checks or any other maintenance or insurances.
The majority of buy to lets that we arranged like the above would have needed monthly contributions from the owners.
How do you then access your supposed £350k at the end - sell it and pay an estate agent, solicitor and 40% Capital Gains Tax or do you bung another mortgage on it and then pay mortgage payments all over again?
Property had been a great appreciator over the last 30+ years, I have really enjoyed it but that does not mean that history will continue to repeat itself. Property was OK in the 50-60s but it wasn't really until the later 70's that things started to really motor...this could have been the golden years for all we know.
In conclusion I think it is not wise to automatically assume that property is always the slam dunk answer and as i have said many times on PH we need to compare alternatives net with net and consider liquidity etc.
Agree with that, there is always a lot to consider and a lot of pitfalls. But I was originally comparing it to shares for the average person and that too has a lot of pitfalls and doesn't have the benefit of being able to borrow against the asset itself. People often do not realise that if you pile all of the rent back in to a capital and interest mortgage you would have seen probably little or no cash flow to take as income but HMRC still want income tax on the rental profit which used to be the capital element of the mortgage payment.
Using the rent to pay off the mortgage to zero doesn't leave much for rental voids, new boilers, re-decoration every 5 years, new carpets, gas safety checks, agent fees, elec safety checks or any other maintenance or insurances.
The majority of buy to lets that we arranged like the above would have needed monthly contributions from the owners.
How do you then access your supposed £350k at the end - sell it and pay an estate agent, solicitor and 40% Capital Gains Tax or do you bung another mortgage on it and then pay mortgage payments all over again?
Property had been a great appreciator over the last 30+ years, I have really enjoyed it but that does not mean that history will continue to repeat itself. Property was OK in the 50-60s but it wasn't really until the later 70's that things started to really motor...this could have been the golden years for all we know.
In conclusion I think it is not wise to automatically assume that property is always the slam dunk answer and as i have said many times on PH we need to compare alternatives net with net and consider liquidity etc.
JuanCarlosFandango said:
Caddyshack said:
Yes, that £75k mortgage assuming you had £25 deposit for a residential BTL would have cost 133,500 in mortgage payments assuming an average 5% - that is leaving out product renewal fees.
People often do not realise that if you pile all of the rent back in to a capital and interest mortgage you would have seen probably little or no cash flow to take as income but HMRC still want income tax on the rental profit which used to be the capital element of the mortgage payment.
Using the rent to pay off the mortgage to zero doesn't leave much for rental voids, new boilers, re-decoration every 5 years, new carpets, gas safety checks, agent fees, elec safety checks or any other maintenance or insurances.
The majority of buy to lets that we arranged like the above would have needed monthly contributions from the owners.
How do you then access your supposed £350k at the end - sell it and pay an estate agent, solicitor and 40% Capital Gains Tax or do you bung another mortgage on it and then pay mortgage payments all over again?
Property had been a great appreciator over the last 30+ years, I have really enjoyed it but that does not mean that history will continue to repeat itself. Property was OK in the 50-60s but it wasn't really until the later 70's that things started to really motor...this could have been the golden years for all we know.
In conclusion I think it is not wise to automatically assume that property is always the slam dunk answer and as i have said many times on PH we need to compare alternatives net with net and consider liquidity etc.
Agree with that, there is always a lot to consider and a lot of pitfalls. But I was originally comparing it to shares for the average person and that too has a lot of pitfalls and doesn't have the benefit of being able to borrow against the asset itself. People often do not realise that if you pile all of the rent back in to a capital and interest mortgage you would have seen probably little or no cash flow to take as income but HMRC still want income tax on the rental profit which used to be the capital element of the mortgage payment.
Using the rent to pay off the mortgage to zero doesn't leave much for rental voids, new boilers, re-decoration every 5 years, new carpets, gas safety checks, agent fees, elec safety checks or any other maintenance or insurances.
The majority of buy to lets that we arranged like the above would have needed monthly contributions from the owners.
How do you then access your supposed £350k at the end - sell it and pay an estate agent, solicitor and 40% Capital Gains Tax or do you bung another mortgage on it and then pay mortgage payments all over again?
Property had been a great appreciator over the last 30+ years, I have really enjoyed it but that does not mean that history will continue to repeat itself. Property was OK in the 50-60s but it wasn't really until the later 70's that things started to really motor...this could have been the golden years for all we know.
In conclusion I think it is not wise to automatically assume that property is always the slam dunk answer and as i have said many times on PH we need to compare alternatives net with net and consider liquidity etc.
Caddyshack said:
Yes, totally correct. It helps to dip a toe in both really. I always say to myself "compared to what?" when thinking of any investment.
Indeed. Especially right now when you can get 5% on fixed term savings accounts with practically zero effort or risk. It won't make you rich but it might well outperform either property or stocks over the next few years.Whenever these threads come up they always assume mortgage requirement and use that to try and kill the idea.
When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
Willhire89 said:
Whenever these threads come up they always assume mortgage requirement and use that to try and kill the idea.
When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
Not so sure. As above if you had put the same amount into a fund tracking the FTSE 250 or S&P 500 you'd have achieved a similar rate of return with less risk of a bad tenant or expensive repairs and maintenance. All else being equal.When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
Of course all else is not equal and if you can apply your own knowledge of the market, ability to save money and nous for picking decent tenants then you could still make property work for you. I'd still say the ability to leverage is the best bit though.
Willhire89 said:
Whenever these threads come up they always assume mortgage requirement and use that to try and kill the idea.
When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
That is one good option that worked well for you.When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
It is not really correct to say "it IS the best place" - it may have been correct to say "it worked out very well based on what has happened in past" - we simply do not know how property will perform against other options.
I sat down with a mate who sold a business and his net amount was £2.5m, he was essentially a financial director and absolutely loves property - he soon came to the conclusion that 2.5m cash in to property was not close net for net to what he could get elsewhere. He did buy a few properties but used mortgages and invested the rest, he managed 14% for 2 yrs on a kick-out investment.
There are always differing perspectives on what is the best approach. You need to decide what personally works for you. For me its BTL coupled with a pension and some ETF's plus a bit of cash in the bank
Over the years, I've built up a 10 property portfolio which is essentially going to be my retirement fund. All will be fully repaid when I retire (on cap repayment mortgages) and in todays money will generate nearly £100k income without any erosion of capital. Yes, there are costs to maintain etc. Yes, a big bill with crystalise if I sell in terms of capital appreciation. Yes, houses are not the most liquid assets but for me it works
So much so, I'm continuing to buy.
Also, to all those who say there is no offset for interest on a BTL mtg - there is. The rules changed and its not as good but there is still a 20% off set allowance made when you do your self assessment
Over the years, I've built up a 10 property portfolio which is essentially going to be my retirement fund. All will be fully repaid when I retire (on cap repayment mortgages) and in todays money will generate nearly £100k income without any erosion of capital. Yes, there are costs to maintain etc. Yes, a big bill with crystalise if I sell in terms of capital appreciation. Yes, houses are not the most liquid assets but for me it works
So much so, I'm continuing to buy.
Also, to all those who say there is no offset for interest on a BTL mtg - there is. The rules changed and its not as good but there is still a 20% off set allowance made when you do your self assessment
Caddyshack said:
Willhire89 said:
Whenever these threads come up they always assume mortgage requirement and use that to try and kill the idea.
When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
That is one good option that worked well for you.When we started I purchased one flat and of course the agent told me I was a muppet and to buy three splitting the money - sure we've missed out by not gearing over the last two decades but I've never had to worry about mortgage margin and as a starter that was what I wanted.
If you have cash it is still the best place to reliably earn money with the opportunity for capital growth and most have doubled or trebled in that time. Rents here in the east mean they technically pay for themselves in around ten years.
Longest tenant moved in 1994
It is not really correct to say "it IS the best place" - it may have been correct to say "it worked out very well based on what has happened in past" - we simply do not know how property will perform against other options.
I sat down with a mate who sold a business and his net amount was £2.5m, he was essentially a financial director and absolutely loves property - he soon came to the conclusion that 2.5m cash in to property was not close net for net to what he could get elsewhere. He did buy a few properties but used mortgages and invested the rest, he managed 14% for 2 yrs on a kick-out investment.
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