Why Did I Ever Invest in Buy to let?

by Readers Question

16:38 PM, 22nd February 2017
About 3 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

Graham Bowcock

17:50 PM, 25th February 2017
About 3 years ago

Dear James

I'm with the respondent who said "don't panic". I suspect that most of us property investors have had a wobble at times but, for most of us, we come out the other side. On average post war, UK property values have doubled every ten years. That's not a guarantee and I've seen properties in some areas fall very significantly (as well as being an investor I am a Registered Valuer and specialise in portfolio valuations). Often those who paid the most were somewhat sucked in, usually with new build flats.

It does the industry no favours to describe yourself as an amateur investor; I know what you mean, but the fact is you are investor and have laid our, presumably, a reasonable sum of money for your investment. As such there is a need to take the rough with the smooth. I've dabbled with shares in the past - with no success, but have found a niche in owning and managing property.

I agree with those who say you need to be commercial about your "business". It is odd that you dropped the rent when most of us are increasing rents. It is one thing to try and keep good tenants but if your concerned about money then it sounds like you need to try and maintain the rent as high as you can get it.

From what you say it doesn't sound like things are too bad. You have pension provision and you are not required to sell the property or re-mortgage. It also sounds like it makes a cash surplus (which could be higher). I would recommend that you put some of the cash surplus aside for the rainy day funds - if things are tight how would you cope with replacing the boiler or any refurbishment, or void periods?

As regards the difference between the north and south this is where any investor needs to be very sure of what they are doing. I cannot speaks for the south of England, but here in south Manchester demand is good. I have just bought a regular two bed semi and it went to best and final offers - I don't recall doing that before in nearly thirty years. However, we do a lot of work in Liverpool (BTL valuations) and I agree with the person who commented about the market there; the key issue really, in my experience, is the quality of housing stock. Gross Initial Yields may be higher but capital growth will be slower. Any investor needs to decide which market they want to be in.

Hope this helps

Graham

Matt Cole

19:50 PM, 25th February 2017
About 3 years ago

Completely agree with Darlington Landlord. Most houses in the North East are seeing the effects of negative equity due to the 'boom' prior to 2007/2008.

You can't give houses away in the north and I would really appreciate any good advice given on here to be tailored to the specific region of the country.

In my opinion, London has had it's day and maybe has spoiled it for the rest who cannot now yield similar returns to that of more lucrative areas such as London and the effects of Section 24 imminent.

Si G

7:44 AM, 26th February 2017
About 3 years ago

Reply to the comment left by "Mark Alexander" at "24/02/2017 - 07:20":

Hello Mark, sound like James will be receiving less income due to the reduction in mortgage interest relief so maybe he'll need to think about increasing the rent to offset that ? No pain no gain as they say.

Mark Alexander

7:56 AM, 26th February 2017
About 3 years ago

Reply to the comment left by "Simon " at "26/02/2017 - 07:44":

From what James has told us I doubt he will become a higher rate taxpayer as a result of section 24. I could be wrong but I cannot say for certain without him divulging significant personal financial information. He may prefer a private consultation for this as opposed to sharing his personal finances on an open form. Please see our tax planning section of this website.
.

Monty Bodkin

14:47 PM, 26th February 2017
About 3 years ago

Reply to the comment left by "Alex Russell" at "25/02/2017 - 10:19":

Hello Alex,

Some of my properties are in the North, I've owned them for many years.

"so who says that if they hold on for another 10 years they will be in positive equity!?"

Firstly, the OP said a NW town, presumably therefore, it is not the city of Liverpool*.

I didn't say they would be in positive equity, but that they would be no worse off. Assuming this is an average NW town, where do you think nominal prices will be in 10 years time?

A) The same or higher.
B) Lower.

Barring war, pestilence or plague (in which case there will be far more to worry about than house prices), I think answer A is far more likely. Same answer goes for rents.

*Liverpool's population is in decline, although the population of the NW as a whole is increasing (and forecast to continue growing). It is my opinion the city's political leaders will do to Liverpool what the Luftwaffe failed to do. They are sending out a clear message to landlords and property investors. My commiserations for investing your money there.

Alex Young

11:23 AM, 28th February 2017
About 3 years ago

Thanks to everyone who posted on my thread I found it really helpful and useful to discuss with my wife your views and show her . The last couple of comments do nail it, in smaller towns particularly the recession was devastating and house prices really sank especially flats because too many were developed and over-valued. It is a different world in the north I know someone in Oxford that owns a terraced house with a garden near to the city centre and it's value is around £500,000 that same property in Sheffield would struggle to make £300,000 and I guess in parts of the NE even less. Even in a place like Sheffield the city is divided, properties in the SW can be double in value to similar in the same city. The government has no idea they simply view matters as they are in London but many landlords in the north (and let's not generalise too much there are big differences across the board in the north) have had to reduce rents. I would rather keep my rent sensible and maintain a good tenant.

Once again many thanks.

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