Reply to: Sell! Sell! Sell!

[BlasterBates]

Yes I agree 7% is about right, for equities it is roughly 10%.

In the UK its more a less a free market you can charge whatever rent you like. The artificially low rent only applies when governments restrict rents, as they do to some extent in Germany.

[Muttley08]

What determines a reasonable price is what rent can you get.

Not an expert at all on these sorta things but...

Isn't a good rule of thumb 7% return, which equals the magic 14 year doubling of an investment?

So, if capital appreciation + rent= 7% (above mortgage payments), then it's worth buying, if not, then it's not.

Currently, I've heard BTL's are returning 1-2%, or less in some city centres (such as Leeds).

[King Cnvt]

Doesn't that just mean current rents are artificially low rather than prices artificially high?

[BlasterBates]

What determines a reasonable price is what rent can you get.

A BTL should give you a reasonable return without capital appreciation. If houses are overpriced it is because investors assume capital appreciation. That works for a while but acts like a pyramid scheme, to make money, you need some mug to buy your flat at a higher price.

So you can work out easily what prices should be, whatever they are, just look at the rent and the costs, which includes interest payments. It should be a couple of percentage points above what you get in a building society.

[Muttley08]

So long as Kirsty Allsop is taken off the screens, I think most people would be in favour of a real estate correction (crash)

Correction is pretty much a done deal now. I just hope the contract market can hold up for the next 3 years (my game plan) before the next downturn.

It's all gone very quiet in the estate agency game....couple of them have even admitted it. Numbers of sale boards are rising. Saying that, if the BoE lower IR's, it'll kick on again.

And don't knock Kirsty...quite cute, if a bit of a chuffer these days

[bobhope]

So long as Kirsty Allsop is taken off the screens, I think most people would be in favour of a real estate correction (crash)

Correction is pretty much a done deal now. I just hope the contract market can hold up for the next 3 years (my game plan) before the next downturn.

[Sysman]

What makes it different this time is the tightening of credit. Something we haven't seen before. If UK lenders haven't been loosening credit, then it will not affect it, and the housing market will continue.

Actually, a tightening of credit did happen the last time around, in the early to mid-1990s. This one hit a lot of one man bands and family run companies.

The banks seek to reduce their exposure so start going through everyone's borrowings. If you have a working overdraft necessary for your business, the banks will put a lot of pressure on you to reduce it. At this point you lob a load of money at the bank (if you can afford to), and the taxman deems that money as income. Whoopee! You get to pay tax on that.

Or maybe you sign your house or other assets over to the bank to give them more collateral. At the slightest drop in house or commercial property prices, the bank will start saying that you haven't got enough collateral.

And so it goes.

Now for IT contractors, many should be in a position of not running a constant overdraft, but what happens when the corporate HQ puts a blanket ban on hiring outside companies?

[sasguru]

"6) Property is most definately over as a good investment."

For a couple or so years maybe, not forever. Once nearly everyone is saying its a terrible investment it will be time to start buying again.
Whatever happens in the next 2 or 3 years I reckon by 2012 house prices will be higher than they are now, certainly anywhere near London.

The USA has simply vast amounts of land to build on, we are far more densely populated, so I don't think the UK property market will be hit as hard as them.

The US - China/India - commodities relationship is tricky, if China is that dependent on US demand then miners/natural resoruces will also be hit if there is a fully blown US recession.
But its hugely arrogant to think the Chinese and Indians sole purpose is to serve the US forever. As China and India develop an affluent middle class of their own as consumers, they will become more self-sustainable and less reliant on the USA. The downside of this will be inflation, as the Chinese and Indian workers demand higher pay.

Funds like JP Morgan Natural Resources (now adding uranium miners) have taken a hammering since June, although going forward it might be worth a punt. Peak oil means the oil co's should be a safe bet.
A corn/crop-based fund should be a winner, ever more mouths to feed and I read to fully replace oil with bio-fuel you'd need to use over 100% of the world's current food growing arable land just for fuel.

Good analysis

[GreenerGrass]

"6) Property is most definately over as a good investment."

For a couple or so years maybe, not forever. Once nearly everyone is saying its a terrible investment it will be time to start buying again.
Whatever happens in the next 2 or 3 years I reckon by 2012 house prices will be higher than they are now, certainly anywhere near London.

The USA has simply vast amounts of land to build on, we are far more densely populated, so I don't think the UK property market will be hit as hard as them.

The US - China/India - commodities relationship is tricky, if China is that dependent on US demand then miners/natural resoruces will also be hit if there is a fully blown US recession.
But its hugely arrogant to think the Chinese and Indians sole purpose is to serve the US forever. As China and India develop an affluent middle class of their own as consumers, they will become more self-sustainable and less reliant on the USA. The downside of this will be inflation, as the Chinese and Indian workers demand higher pay.

Funds like JP Morgan Natural Resources (now adding uranium miners) have taken a hammering since June, although going forward it might be worth a punt. Peak oil means the oil co's should be a safe bet.
A corn/crop-based fund should be a winner, ever more mouths to feed and I read to fully replace oil with bio-fuel you'd need to use over 100% of the world's current food growing arable land just for fuel.

[sasguru]

WTF?

Sometimes posting on here is about as useful as teaching quadratic equations to Chimps....

[King Cnvt]

What "losses"? The only way they will incur significant losses is by forcing a crash by raising rates too high, and at that point they will find themselves with a huge glut of repossessions that they are stuck with because nobody can afford to buy nor will even want to buy as their value will be plummeting. That makes no sense at all. Try again please, this time with brain engaged.

WTF?

Sometimes posting on here is about as useful as teaching quadratic equations to Chimps....

[shaunbhoy]

They do say too much intelligence is a curse though.

But not to YOU though!

[sasguru]

What "losses"? The only way they will incur significant losses is by forcing a crash by raising rates too high, and at that point they will find themselves with a huge glut of repossessions that they are stuck with because nobody can afford to buy nor will even want to buy as their value will be plummeting. That makes no sense at all. Try again please, this time with brain engaged.

I wish I lived in your rose-tinted world. Do angels play harps at the bottom of your garden too?
They do say too much intelligence is a curse though. If that is true, you are truly blessed.

[ferret]

Think this article kind of shows how the current US troubles can knock on to UK institutions:
http://www.bbc.co.uk/blogs/thereport...ars_loans.html

[shaunbhoy]

Something you need to know.

Mortgage interest rates will rise, even if the BOE base rate does not.

The cost of borrowing will have to cover lenders losses in sub-prime.

What we will see, is lenders slowly push up mortgage rates to well above base rate. They need to cover their losses.

The era of mortgages at or even below base rate are long gone.

Base rate will be 6% and mortgages will be at least 8%.

You have been warned.

What "losses"? The only way they will incur significant losses is by forcing a crash by raising rates too high, and at that point they will find themselves with a huge glut of repossessions that they are stuck with because nobody can afford to buy nor will even want to buy as their value will be plummeting. That makes no sense at all. Try again please, this time with brain engaged.