Reply to: Buy v Rent

[ASB]

I'm still charging the same rent that I did 5 years ago (NE London). My property has gone up 40% in value. You could now no longer buy the same property with less than a 60% deposit and break even! I wasn't that well geared 5 years ago - I covered my costs and then a little bit more, but you'd have to be absolutely mad to enter the BTL market now.

The same circumstances might also make you mad to stay in it. (I've kept in it with one property). This yields < 3.5% on it's current value. This is about 2.85% after all agent costs etc. Unfortunatley the overall cost of the debt is about 3.3%.

The effect of this is that I am contributing about 75 pcm to the interest on the mortgage, the tenant the rest. Thus currently the only return is the capital growth (or lack of!).

This property has debt of 110k on 200k, so I'm also losing the opportunity value of 90k. Even in a deposit account this would yield about 3.2k after tax. Thus considerably increasing my landlords subsisdy.

Over the 8 years I've had the property it's done well enoguh. Capital appreciation of about 110k, some of which was used (hence the comparatively high mortgage) to purchase another property which was sold yielding a short term 22%.

Just at the moment though it is certainly not paying its way. It will probably be sold next April, too many CGT problems to do it earlier.

IMHO the best investment a 40% taxpayer can make is to pay capital off their own mortgage

Paying capital off your mortgage as a 40% taxpayer gives a guaranteed return of about 10% for most people. Or to put it another way the asset you hold should be generating at least 10% to be worth holding the debt for.

I know a few people who have mortgages on their main residence and also BTL's. Holding on to the secondary properties in a flat market is crazy (ok it's possibly worth doing it for a while).

[Helios]

While you rent u r homeless. Technically.

When you have a deed for your own land, you own your own land.

Bricks and Mortar are not worth the paper they are written on. Imagine if GB got owned by Germany in the 1940's, Adolf would have been training his dogs in westminster and the queen would have been cleaning the toilets in the house of lards.

I am going to camp at the tower of london and after 16 years or whatever it is, will claim it as my home as an occupier. Let the bastards depute my claim then. LOL

[DimPrawn]

You can release the equity easily using a mortgage such as the One Account. I even have a Visa card with a £250K spending limit if I want to spend it that way.

Means I can "borrow" against the equity in the house for investments, make a pot of cash and them put the money back and keep the profits.

Which was nice. Has paid for two other properties and a villa abroad over the years.

[lilelvis2000]

What I would like to know is how you can live in your house and use the equity you have in it? Are you guys talking reverse mortgage? or are you talking about taking a loan secured against your property? both bad ideas in either account.

[Lockhouse]

Rents

I'm still charging the same rent that I did 5 years ago (NE London). My property has gone up 40% in value. You could now no longer buy the same property with less than a 60% deposit and break even! I wasn't that well geared 5 years ago - I covered my costs and then a little bit more, but you'd have to be absolutely mad to enter the BTL market now.

IMHO the best investment a 40% taxpayer can make is to pay capital off their own mortgage, sell up and leave the country.

[bobhope]

Shoeshine boy

Eleven years ago, when I bought my first house, nobody was interested in property. Interest rates were ~6%. Gross yields in the South-East were ~12%. In hindsight, it was a no brainer. Fast forward to 2004 and now everybody I met was telling me what a good investment BTLs were, now that prices had more than doubled. Now the repo rate is ~4.5% and gross yields are 3-4% maximum. It's yet again a no brainer, but in the other direction. When my sister-in-law, hairdresser, distant cousin, etc. announced they were buying investment properties, I took that as my cue to exit. Everyone knows the quote by Joe Kennedy when he sold his stocks weeks before the 1929 stock market crash after receiving stock tips from the boy that was shining his shoes:

"When the shoeshine boy starts giving you stock tips, it's time to get out of the market."

[mcquiggd]

That will never happen. Mass immigration will save us.

[sappatz]

uk pensions

uk state pensions are a scam !!
according to some studies (gartner and others), the british governement will be bankrupt by 2030 if it continues paying the same pensions as now !

[TheMonkey]

I've got an alternative perspective.

1. Get fed up of working and have a nervous breakdown.
2. Get dead end job in McDonalds
3. Move your entire family in with your parents if they are still clinging on to life.
4. Get kicked out due to overcrowding after 9 months
5. Get a council flat
6. Transfer around until you get something strategically worth something (Islington / Angel area is a good investment)
7. Magically start your own contracting outfit and make lots of money
8. Excercise your right to buy.
9. Buy
10. Sell
11. Profit!
12. Move somewhere more economical and nice (i.e. Newark / Lincolnshire).
13. Live happily ever after.

Easiest way to reclaim tax that is.

[AtW]

House prices stopped increasing considerably couple of year ago, since there is no obvious change in that it seems to make sense get better yield on money by cashing in on increase in value and putting them elsewhere.

[The Master]

Your 3% calculation excludes the increase in the capital value of the property. In some ways the rental income is just a bonus on top of that.

[AtW]

Case in point - the house that I rented for over 3 years @ £600 per month was put on sale, annoying as I had to move few streets away, but guess the price that they want - £230k. Think about it - they were getting £7200 pa in rent (and they were lucky to have it fully occupied over long period of time, usually landlords can expect to lose 1 month a year) on asset worth 230,000, this gives yield of 3%, less than BoE rate! It was more beneficial from business point of view to sell house and put money into bank, something they finally arrived to.

Rents can't be pushed up in Brum - when I checked info during move I found that plenty of properties available and some have lower prices than before, not in exactly the best parts of Brum, but the point is that over last 6 years rents did not increase, more like fallen - a lot if you take into account inflation.

[IR35 Avoider]

Buying over the long term gives you a house and a large lump of equity at the end

I bought a flat in 1989 for £120,000. I sold it in 1998 for £120,000. At one point my interest payments (on a £120,000 mortgage) were over £1400 a month. I could have rented the flat beneath (which was better because it had a garden) for £850 a month and lived without several years of worry of being made bankrupt due to negative equity if I was ever without contract.

As it turned out, I spent most of the 1990s working for the same client, had it not been for the negative equity I could have moved to a flat 5 minutes from the client instead of spending more than two and a half hours a day for several years commuting from one side of London to the other at an average speed of 21 miles per hour.

Of course I was "unlucky" with the timing of my entry to the property market, but it just goes to show that, as with shares, there are times when you should just not buy property.

On the other hand, despite some nervousness a few years ago, I'm not really expecting a big crash now. And I have made a big gain since 1998. I think if I were out of the market now then the sensible thing to do would be to base decisions on short term cost, which would probably mean renting. The boom we have just had was due to a one-off shift to a low interest-rate environment, but is now over, and I don't think there are gains to be had in future.

[sasguru]

It's all about timing. Buy now at your own risk IMHO. US interest rates are rising and ours will follow as night follows day. People are now paying 42% of the take-home on mortgages - much too high. The signs are there for those who want to see them.

[Bagpuss]

Don't shoot yourself love, it could hurt!

PS Janey, is this you?

www.janeyweb.co.uk