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Buy to let (bubble)

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I agree with BTLWhizz

I almost bought a house wth a work colleague in 88 but didn't and have been thankful as could have just afforded it at 7.5% but at 15% it was a no way.

People forget the frenzy in late 1980's regarding property and how long the market dropped and how long it stayed that way.

Eventually bought in 92 on own (new house completed in 90 but empty since built) and finally in 2000 the house started to be worth more than paid for it. Now its worth 2.5 times what I paid for it but I question whether it will stay there.

Price declines of 30-50% were standard and with high interest rates many people had no option but to sell and pay back whatever they can.

There is a ceiling after which prices won't really go much further and almost feel we are within range of it.

The market will sort itself out for a couple of years and come back.

Banks and Credit card companies will tighten credit very quickly and as many found out they are pretty unsympathethic.

At the moment the herd is getting into BTL with every house going on the market getting BTL investors interest and this is in a market where supply is squeezed. When everybody gets into it then is the time to wait.

I just see investors trying to sell properties at the moment where rent cover is 120%, on a 15% mortgage the mortgage is 192 times rent this starts to become barely mortgageable. Maybe the market may correct itself if the mideast gets too hot.

Assumming the new migrants stay is not always the case as 20 years ago in excess of 150,000 Irish has come to the UK and helped the rental market but when unemployment in the UK went up many decided that going home or elsewhere was better.

If the rest of EU open up their labour markets the influx may change dramatically.

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A million reasons can always be found for not doing something. 5 years ago so called experts were finding loads of reasons for not investing in property and most "told you so's" still are so they can say so should the crash occur. In the meantime my initial investment went up 300%. Good enough for me.

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Okay no problem so what we do is wait for prices to come down; for how long ?

My brother did for 2 years in London; from 03 to 05, yep they were going to come down; all the experts were saying so; all the papers were saying so; and so was every bloke walking their dog in park and in the pub.

Well after 1 year they had gone up - no problem now they were really going to crash !

After year 2 he woke up; as the flats he was originally looking at had gone from £150k to around £250k so he bought at £248; his prop is now worth £330k

There will always be corrections - If you are looking short term <5 years make sure you buy well below market value. Long term is clearly not so critical but you MUST buy with intrinsic (built in) profit regardless !

There you go - simple !!!!!!!

Some will go up some will go down; just do your research and make sure you have your self covered.

This from experience; not text book or top of my head my portfolio is worth in excess of £5million from scratch since 2001 - No prizes requested ! I only say this to illustrate the point and hopefully provide inspiration to others ! guess what; I'm still buying !

Simon

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well,, seems all you chaps dont seem to have got the idea of this buy to let biz..... supply and demand,, houses will always go up as long as there is a shortage of them,, in the south that is most true. and, tell me what biz you can make loads of money with next to no investment,,, lets look at just for example a £100K house (if there is such a thing now) you buy with 85% borrowing, so you have laid out £15k, you tie into a 2 years discount deal, interest only, the rent will pay the payments plus a little bit more,, after the two years you refinance the place, it should have gone up around 10% a year, so that makes the place now worth 121k,, again you get a 85% deal, this gives you £102850,,, so what you have now is a house for nothing and 2850 profit after just two years,, so for this house for nothing you should now be earning 10k plus each year by repeating the above

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Completely agree. A flat I bought less than 3 years ago for £65k was re-mortgaged for £90k, meaning paid for itself, released cash and rent still higher than the mortgage.

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I agree in theory - but this only works when the rent is in line with the mortgage and the rent fits the lending criteria which is becoming a problem on a lot of properties also doesn't take into account voids, ins, service charges unpaid damages and what can sometimes be a lot of man hours in chasing bad debt etc

Having said this my attitud is the same as yours BUY BUY BUY !!!!!

( the right ones !)

Simon

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I disagree with the BUy BUY BUY attitude, inflation is higher than expected so interest rates with be lifted next week, possible by 0.5% and are on the way up rather than on the way down.

House prices are officially 50% over priced according to the The National Institute of Economic and Social Research. First time buyers are out, greed by speculators is the only thing pushing prices up now, a few more interest rate rises and the pyramid scheme [known as the house market] will sting whoever has bought at the top.

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Hi Reg

re Buy Buy Buy

( the right ones !) as per my detailed definition of the ""right ones" earlier in this thread!

I fully expect interest rates to rise next week and again very soon afterwards and have this along with interest rates upto 10% figured into my "equation" :- "the right ones "!

SImon

What are you saying Reg Sell Sell Sell ??

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I'm not saying Sell Sell Sell,

I intend to purchase another buy-to-let in the future [i currently own two] but affordability in my opinion is going to get worse this year, but good luck to you guys that want to push ahead.

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Demand for the right sort of properties is higher than ever and likely to continue with a steady economy and increased demand from UK and new influx of overseas workers. House prices rise because home owners want to sell for as much as possible and if there's demand will continue to do so. The NIESR report is general and pretty meaningless. Their parameters for assessment don't the reflect reality of local markets.

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Hi,

I don't understand the debate ...... the only risk a landlord takes when investing in a buy-to-let property is "will it easily let out with very minimal void periods". As long as the property is let and the rent "broadly" covers the interest payments to the bank then it doesn't matter what the housing market does.

Most landlords are taking fixed rate mortgages to protect themselves against rising interest rates in the short term. In the longer term - assumin interest rates continue to rise - then rents will also have to rise.

The tenants have no option. They either pay the same (higher) interest rates or they have to pay higher rent.

B2L is a long term investment - house prices will rise and fall - but "the trend is your friend" - over the long term house prices will rise.

My formula for buying is simple. If the property yields 5% then I buy it. I know I will be making a small loss (ie: interest will exceed rent) in the short term but, with a fixed rate mortgage, rents will rise faster than my interest in the short term.

In the long term I am more geared for capital growth. I don't take any notice of short term predication on housing prices ......

BUY BUY BUY .... I bought another house earlier this week .....

Mark

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Hi Mark

not to sure about that formula !

"If the property yields 5% then I buy it. I know I will be making a small loss (ie: interest will exceed rent) in the short term "

If you apply that to all of a portfolio - you are going to have to find a lot of surplus cash to make up mort payments and void periods are going to be very expensive ! not to mention the odd replacement boiler etc I would not even think about contemplating running a portfolio that was losing money every month - why would you ?

THE DIFFERENCE OF BEING A "MAKING A SMALL LOSS" EVERY MONTH AND "MAKING A SMALL PROFIT" EVERY MONTH IS THE DIFFERENCE BETWEEN BEING BANKRUPT AND BEING WEALTHY !!!

I had a huge disagreement with my bank manager when he suggested that i remortgage my portfolio to the bank - not a bad rate at the time- but they would only do 80% LTV against the min 85% i was prepared to discuss. He agrued that 5% on a portfolio the size mine is was Negligible

WELL, AS I EXPLAINED TO HIM - I DONT FIND A QUARTER OF A MILLION QUID "NEGLIGIBLE" !!

The difference is simple - an extra 250,000 representing 15% Dep on future investments would buy 1.6million of fresh prop and after just 1 year at 5% Eq growth would give 83K profit without taking rents into acc - after 5 years probably getting on for 500,000 so FAR FROM NEGLIGIBLE !!!!!!!!

My point is "look after the pennies....................." He did actually see my point but had his hands tied by bank rules so couldn't do me the deal! - Their loss!!!

i appreciate the rent increase sentiment but rent increases are never in line with interest rate rises - ever in my experience - rather held down by the market and LL's with small or no mortage on their props and in reality people like you who are just looking at cap gains not income !

Also personally have never found a lender who wil lend on a prop where the Mort payment is going to be higher than the rent ( at least not with an acceptable rate !)

I think this is a very dangerous "formula"!!

I invest for a return with minimal risk - this is far from my definition of "minimal"

did i miss the point you were trying to make ??

Completely agree with short term predictions though - by experts ??!!!!

Experts at talking XXXXXX and nothing else!

Simon

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my quick 2 penneth worth...

In general I'd have to echo the sentiment, buy buy buy! If you're on the ball and understand the market then there's serious money to be made.

BTL>Release the equity>BTL again ...recurring! (definitely worth looking off-plan too)

Cheers

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