Why are BTLs still popular?
Discussion
joyless lobotomised parrot said:
Gooose said:
What else can I do to get around £2,500 a year from £40,000 and have someone else pay for the house for me?
I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
Of the vast amount of nonsense written about btl on PH this is probably the most common one. I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
In this example, the owner could reduce his income by about £300 a year and do NOTHING. Live in another country or in a vegetative state immobile and insensate. The only difference would be that people far more competent to deal with his property would be doing the 24/7/365 bit.
M-A-N-A-G-E-M-E-N-T.
The biggest risk/pain for BTL is a tenant not paying the rent and going through the eviction process. That costs you a lot more time and money. It certainly puts the odd dripping tap into perspective.
zubzob said:
But if the profit margin is there, then why wouldn't a big company buy a 1000 houses? If profit is there for an individual, why wouldn't it scale?
If it is inefficient, why is the profit margin of the amateur buyer immune from these inefficiencies?
Re funds investing in commercial buildings etc...t here are large REITS and property trusts etc, but pension funds don't appear to bother with them, as far as I can tell.
A few commentators have pointed out that Donald Trump would be much, much richer now, over 2x as rich, had he not ever invested in any property.
If the profit were there and their investment criteria were appropriate then they would. And they do. If it is inefficient, why is the profit margin of the amateur buyer immune from these inefficiencies?
Re funds investing in commercial buildings etc...t here are large REITS and property trusts etc, but pension funds don't appear to bother with them, as far as I can tell.
A few commentators have pointed out that Donald Trump would be much, much richer now, over 2x as rich, had he not ever invested in any property.
Edited by zubzob on Saturday 28th April 14:37
But if the deal doesn’t add up then they won’t. That doesn’t mean a private investor cannot make it add up. Especially as they have no portfolio criteria to work to and very often zero comprehension of risk pricing.
I think, however, that over the last half decade the level of institutional investment has risen but ClaphamGT was the authority on this.
zubzob said:
Something I've always wondered... genuinely. (Not trolling, I'd actually like to know)
If BTL is so profitable, how come it is so full of amateurs, and why don't pension funds, trusts etc invest more in leveraged property?
Where is the amazon of the leveraged property world? I know there are some property companies ,but the big pension funds and trusts pay little attention to property.
Is this cos of tax breaks etc? Or is it more that, once you factor in the leverage risk, management, illiquidity etc, equities usually outperform property in the long run?
Also these BTL profit examples are very location specfic. Maybe faulty to cite as evidence post-code level property returns vs average equity returns. To flip this, I could probably cherry pick a market index that beat average leveraged property returns in 'most' counties over the last 10 years.
So is there a bit of survivor bias here? I don't see many posts from BTL owners who just broke even after all costs and time. But they are surely out there.
I've noticed that most back of the beermat calcs comparing property to equity rarely add a number for DIY, time, management fees, interest payments, opportunity cost, etc. I'm not saying they are wrong, and that property isn't the better option in those cases. But I'm just saying it's easy to pick and choose and it's different for everyone.
Pension funds aren't allowed to invest in (residential) property.If BTL is so profitable, how come it is so full of amateurs, and why don't pension funds, trusts etc invest more in leveraged property?
Where is the amazon of the leveraged property world? I know there are some property companies ,but the big pension funds and trusts pay little attention to property.
Is this cos of tax breaks etc? Or is it more that, once you factor in the leverage risk, management, illiquidity etc, equities usually outperform property in the long run?
Also these BTL profit examples are very location specfic. Maybe faulty to cite as evidence post-code level property returns vs average equity returns. To flip this, I could probably cherry pick a market index that beat average leveraged property returns in 'most' counties over the last 10 years.
So is there a bit of survivor bias here? I don't see many posts from BTL owners who just broke even after all costs and time. But they are surely out there.
I've noticed that most back of the beermat calcs comparing property to equity rarely add a number for DIY, time, management fees, interest payments, opportunity cost, etc. I'm not saying they are wrong, and that property isn't the better option in those cases. But I'm just saying it's easy to pick and choose and it's different for everyone.
Edited by sidicks on Saturday 28th April 15:13
Gooose said:
I let out a property, my mortgage plus repayment is £220 a month and I get £500 in rent, so 280 profit minus 20% tax so 220 it has cost me about £200 a year in insurance and maintenance, so a profit total of £2440, I have £40,000 invested in it.
What else can I do to get around £2,500 a year from £40,000 and have someone else pay for the house for me?
I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
So to the OP, or anyone more financially savvy than me, can you give me guaranteed investment returns on £40,000 that beat the above?What else can I do to get around £2,500 a year from £40,000 and have someone else pay for the house for me?
I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
If BTL are so frowned upon and classed as poor value then it should be quite easy
sidicks said:
Pension funds aren't allowed to invest in (residential) property.
How high would resi prices be if institutional funds were to be fully released into the market?!!! It’s definitely better that they stick to outbidding each other and overpaying on commercial property and remain well away from residential.
Gooose said:
So to the OP, or anyone more financially savvy than me, can you give me guaranteed investment returns on £40,000 that beat the above?
If BTL are so frowned upon and classed as poor value then it should be quite easy
Why would you compare against guaranteed returns, given that your returns are not guaranteed?If BTL are so frowned upon and classed as poor value then it should be quite easy
BTL can offer attractive risk-adjusted returns, without question.
zubzob said:
I just had a deeper look, and really can't see much evidence at all of any interest in commercial (or any) property in any of the funds, investment trusts and pensions I randomly choose.
I'm excluding purposely cautious funds that invest mostly in bonds etc.
There are numerous (commercial) property funds available and most managed funds include allocations to property, as part of a diversified portfolio.I'm excluding purposely cautious funds that invest mostly in bonds etc.
What funds did you choose for your investments?
Edited by sidicks on Saturday 28th April 15:29
zubzob said:
DonkeyApple said:
How high would resi prices be if institutional funds were to be fully released into the market?!!!
It’s definitely better that they stick to outbidding each other and overpaying on commercial property and remain well away from residential.
I just had a deeper look, and really can't see much evidence at all of any interest in commercial (or any) property in any of the funds, investment trusts and pensions I randomly choose.It’s definitely better that they stick to outbidding each other and overpaying on commercial property and remain well away from residential.
I'm excluding purposely cautious funds that invest mostly in bonds etc.
zubzob said:
There are specialist funds for almost every asset class. Bitcoin even. Doesn't mean bitcoin is a good investment.
None of which is even vaguely relevant to anything I've said.zubzob said:
But mixed funds whose target is a high return, generally avoid property altogther. I found a few income and cautious funds, with 5% reits etc, but these funds still have much greater percentage in equities etc, so I'm not sure this is a slam dunk response.
Which 'mixed funds targeting high returns' are you referring to?zubzob said:
I mean if these funds have 5% in REITS or wahtever, and 80% in equity, that doesn't really convince me that property is a competitive asset, otherwise the balance would be closer
You don't think that retail funds, which have multiple small investors, might be somewhat constrained by liquidity requirements?I’m still not getting the point you’re trying to make?
A pension fund will generally diversify and property is one of those diversifications. Most funds hold exposure to property. Ultimately any fund invests based on its predefined criteria and risk profile.
Don’t forget if a fund has a remit to invest 5% of its worth in a particular asset class then they must do this regardless of whether that asset class is rising or falling in value.
If you want a fund that is more dynamic and has the ability to go all in and balls deep in just one asset then you’re talking about the hedge fund end of the market really.
A pension fund will generally diversify and property is one of those diversifications. Most funds hold exposure to property. Ultimately any fund invests based on its predefined criteria and risk profile.
Don’t forget if a fund has a remit to invest 5% of its worth in a particular asset class then they must do this regardless of whether that asset class is rising or falling in value.
If you want a fund that is more dynamic and has the ability to go all in and balls deep in just one asset then you’re talking about the hedge fund end of the market really.
Nickbrapp said:
My landlord is making a fortune I bet, saw his mortgage statement £325 a month, the rent is £750! No management company, new build house so no issues.
Doesn’t seem that brilliant though. Depending on what type of mortgage it is he has only been able to offset the interest element. If it’s an IO debt then that’s at least the full £325 giving a net income of £425 up until last year. The. It depends on what the income tax bracket is but it’s only a few hundred quid a month assuming no additional expenses. This year the offset is 75% of that £325 (or the interest element) and by 2020 income tax is due on the full rent
In that scenario I can’t see a higher rate tax payer making a positive return beyond 2020?
And on top of all of that you have your labour to factor in, the fact that you might not be repaying the debt and continually running the risk of an issue that could eradicate a year or more’s revenue or getting a sitting tenant.
Unless he is in the final run of a repayment mortgage or bought long enough ago that he has a huge capital growth then it doesn’t look an exciting deal at all, in fact it’s verging I’m wanting to run a mile?
gibbon said:
Gooose said:
I let out a property, my mortgage plus repayment is £220 a month and I get £500 in rent, so 280 profit minus 20% tax so 220 it has cost me about £200 a year in insurance and maintenance, so a profit total of £2440, I have £40,000 invested in it.
What else can I do to get around £2,500 a year from £40,000 and have someone else pay for the house for me?
I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
Again, I hate to be a bore, but its misleading, you historically only got tax relief on interest payment (which is now changing, though it wont be if you only pay 20% tax), you pay tax on the repayment, so the tax you have been paying is wrong. You owe the tax man sadly.What else can I do to get around £2,500 a year from £40,000 and have someone else pay for the house for me?
I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
A landlord cannot offset the repayment part of his mortgage against rental income.
knk said:
gibbon said:
Gooose said:
I let out a property, my mortgage plus repayment is £220 a month and I get £500 in rent, so 280 profit minus 20% tax so 220 it has cost me about £200 a year in insurance and maintenance, so a profit total of £2440, I have £40,000 invested in it.
What else can I do to get around £2,500 a year from £40,000 and have someone else pay for the house for me?
I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
Again, I hate to be a bore, but its misleading, you historically only got tax relief on interest payment (which is now changing, though it wont be if you only pay 20% tax), you pay tax on the repayment, so the tax you have been paying is wrong. You owe the tax man sadly.What else can I do to get around £2,500 a year from £40,000 and have someone else pay for the house for me?
I would love to know because although it’s not hard work, it is a pain in the arse. You are on call basically 24/7 365 days a year.
A landlord cannot offset the repayment part of his mortgage against rental income.
Previously a Landlord has been able to offset the Interest element of a BTL mortgage against the rental income and pay tax on the difference. From 2020, you get a 20% tax credit on the interest element of the mortgage, but cannot offset the Interest against income. So for a 20% tax payer, there is no difference. For a higher rate tax payer you will pay more tax.
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