Why Did I Ever Invest in Buy to let?

by Readers Question

16:38 PM, 22nd February 2017
About 2 years ago

Why Did I Ever Invest in Buy to let?

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Why Did I Ever Invest in Buy to let?

My wife and I bought our one bed flat in a town in the NW of England in 2007 – the plan was simple keep it for 10 -15 years then sell using the increase in valuation as a means to diversifying our pension provision. why

We never bought with a view to growth in units we were happy as amateur investors to see a modest gain at the end after tax. My wife is not a taxpayer so we could mitigate tax cost along the way. Then came 2008, the financial crash and even now my best estimate is that the flat is worth only 60% of cost. We have generally ploughed the profit from rent back into our living costs given that cash deposits are earning next to nothing.

Other than diverting funds from my pension income to assist I have no immediate means to clear the shortfall. Even if we hang on the chances are that in 10 years when the mortgage is due to be redeemed we will be well short. I am now about to finish work because of ill health and a year short of state pension and my wife is 3 years short of state pension. I have decent pension provision, but I hate the idea of this not being resolved.

On the positive side we have kept the current tenant for over 4 years although we have reduced rent to keep her and have no immediate plans to increase rent.

Does anyone have any sensible ideas for taking this forward?

Many thanks

James



Comments

Neil Patterson

16:42 PM, 22nd February 2017
About 2 years ago

Dear James,

Do not panic!

If I have this correct the property is in positive cash flow - tick

Negative equity is only a problem if you try to repay the mortgage or sell the property and you have 10 years before this is an issue. Therefore wait and see what happens and don't do anything drastic like crystallising the tax loss by taking the negative equity cash amount from your pension pot now.

Please note I am not a qualified pension adviser.

Monty Bodkin

19:31 PM, 22nd February 2017
About 2 years ago

As above, if the property is making you money, happy days.

"Even if we hang on the chances are that in 10 years when the mortgage is due to be redeemed we will be well short."

Why? No credible source is predicting 10 year nominal price falls, it is far more likely they will increase.

You have an income source for the next 10 years, even if you have to sell then you will be no worse off, even if the capital loss is the same.

"we have reduced rent to keep her and have no immediate plans to increase rent."

This sounds very odd when the vast majority of rents have been increasing.
Suggest you study and watch comparable rents very closely and then match them.
Rents are due to boom soon with the increasing tax legislation on many landlords. Even if you are unaffected by the changes, it sounds as if you can't afford not to take advantage.

Jireh Homes

11:05 AM, 23rd February 2017
About 2 years ago

Hi James - if you have positive cash flow, then have you considered overpayments on mortgage, which will have double effect of reducing loan to be repaid and reduction in monthly payments? Remortgage with current lender may offer a lower interest rate as many lenders using Halifax average growth in property values and thus your LTV may be reduced, offering potential lower interest rate. May not be sensible to consider changing lender as then subject to fresh local valuation, which may be lower than that "lodged" with current lender. Allan

Ewan Murray

11:23 AM, 23rd February 2017
About 2 years ago

Get the rent to market value, maintain property and sit tight in my opinion.

Paul Green

13:05 PM, 23rd February 2017
About 2 years ago

If you can remortgage, extend the term to the maximum age some are 80 years or more . This will give you a further 4 or 5 years on top of the 10 and buy you some time, give you more time to profit from capital growth, plus possibly a lower monthly mortgage interest payment. Hang in there. You doing ok. You investment just needs tweaking . If you don't fancy being a landlord at 80 or 85 find an agent to fully manage. There get you full market value and buy a rent guarantee insurance policy too. No hassle then..

Mark Alexander

14:17 PM, 23rd February 2017
About 2 years ago

I concur with Neil, Monty and Ewen and have nothing to add.
.

Denise G

16:44 PM, 23rd February 2017
About 2 years ago

I would just add that if you are considering using a Letting Agent in our opinion you can't beat Letting Supermarket fully managed at 5%

Mark Alexander

7:20 AM, 24th February 2017
About 2 years ago

Actually James, on reflection, and having read your original post again, your baptism of fire into property investment is not too dissimilar to my own initial experiences stretching back nearly 30 years now.

I documented my own story quite a few years ago. You might find it inspiring.

Please see >>> https://www.property118.com/my-first-buy-to-let-property-investment/
.

Alex Russell

10:19 AM, 25th February 2017
About 2 years ago

Reply to the comment left by "Monty Bodkin" at "22/02/2017 - 19:31":

Hi Monty, do you live in the south like myself? They are talking about the North West, I know to all of us in the south we find it strange when they say they have lowered the rent and the property is still down in value since 2007. I agree with what they say, I have 4 properties in Liverpool bought 2010, 7 years and I am still having to lower rent just to get a tenant, I can't (sell them) give them away even at 20% below "market value" what ever that really is. We are supposed to be short of hundreds of thousands of houses, obviously not in the north west. Historically we have a recession every 10 years, so who says that if they hold on for another 10 years they will be in positive equity!? Ask home owners in Japan who are 25 years in and still in negative equity. We in the south are in a completely different market, it's really sad that our country is so divided.

Darlington Landlord

12:18 PM, 25th February 2017
About 2 years ago

In the North East its the same, Property Prices and rents have at best just about got back to 2007 levels but some areas and for typical rental property types they are lower. I just wish the press would write about this but they don't seem to want to set foot out of their comfy London Bubble.

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