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TODAY'S OTHER NEWS

Long-term buy to let investment beats other options - new research

The absence of good alternative investments and the modest pace of capital growth for property in recent years are thought to lie behind a new trend for landlords to hold on to buy to lets for longer than ever before.

Research by a London lettings agency - ludlowthompson - shows that 29 per cent of investment properties sold in 2018 had been owned for more than 15 years. This is an increase from 22 per cent just two years previously. 

Meanwhile only one in five investment properties sold in 2018 had been owned under five years, showing fewer buy to let landlords seeking to make quick profits. 

The agency says analysis of alternative investment options show just how sensible landlords are to hold on to their properties.

For example, the FTSE-100 has fallen in value over the last five years and by the end of June this year, and 44 of the FTSE-100’s companies had announced dividend cuts or suspensions - many because of the Coronavirus crisis. 

In the third quarter of this year, FTSE-350 companies had cut dividends by 57 per cent, the agency claims.

Whilst share prices have been volatile since the stock market crash in March, when coronavirus fears shook global indices, UK residential property prices have been stable or rising.

Company chairman Stephen Ludlow says: “Greater numbers of buy to let investors are now in the market for the long term. Interest rates are predicted to stay ultra-low for some time and that helps keep mortgage costs low and rental yields extremely attractive versus other income producing investments."

He adds: “This is good news for both the investors and their tenants. The government has been keen to encourage long term leases to provide certainty for renters. Investors who are planning on holding onto a property for some time provides this guarantee. Furthermore, they are more likely to invest more money into the property’s up-keep.

“The residential property market has held up considerably better than the commercial property sector during these challenging last few months. 

“As London gets up and running again, with workplaces, schools and universities re-opening, demand for rental properties in the capital is likely to continue growing. For long term investors, entering the residential property market could be an attractive option for individuals looking for a steady, stable form of income.”

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    "The absence of good alternative investments" means that I am going to put my money into a bad investment ???

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    Almost every article comparing alternative investments ignores the multiplying effect of gearing or leverage available on residential btl properties.

    20 to 30 years ago I was quite comfortable with a 90% ltv mortgage but now I wouldn't go for more than 75% ltv ( if I were still investing personally which I am not as currently 40% of any gain would eventually go to HMRC and I give them enough already in income tax).

    Getting back to gearing, with a 25% deposit then a nominal 6% yield on a btl property grows to 24% gross, less about 1.5% interest on the 75% mortgage. That £240 per annum income per £1000 equity is solely on rental income and capital growth should augment that further. A 25% increase in property values represents 100% increase in equity on a 75% ltv property - not an unreasonable assumption over a few years based on past performance.

    The risks are that the 25% equity is wiped out by a 25% reduction in property values and the rent doesn't get paid.

    I don't think the former will happen and would guard against the latter with solvent guarantors being required.

    I therefore believe property investment, using money lent by the more cautious (or timid) building society investors is a much better and safer investment than any other investment opportunity.

    Government bonds might be safer but NS&I has just reduced its interest rate from 1.16% to 0.01%, so earning 10p per annum on every £1000 "invested".

    I prefer the £240 per £1000 of equity from a 24% return on equity plus probable capital growth which is why I won't be selling up and would advise anyone with a net worth under the iht threshold to invest in property but do so carefully and cautiously.

    Paul Barrett

    It is indeed still the best game in town.

    The only problem is Govt wants to get its hands on all that carefully garnered LL wealth.
    Forcing LL out of business achieves this.
    .Govt isn't the slightest bit interested in AST lengths.

    Govt is doing an excellent job in deterring LL..
    The lAST letting business is now very suspect due to the ability of tenants to just stop paying with Govt preventing evictions.
    The risks are tok high unless RGI or a guarantor can be found.

    The basic business model is sound but the problem is the dysfunctional eviction process makes it not worth the risk

     
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    Paul

    I still think a potential 24% yield plus capital growth is worth the risk longer term provided landlords can bear a loss of rental income for the time taken to regain possession from rent dodgers.

    If the official legal remedies remain ineffective in the longer term I can see a potential business opportunity for intelligent but muscular "consultants" setting up to advise rent dodgers of the considerable advantages in leaving promptly and quietly rather than staying put and accruing further rent arrears. It's a great pity that Shelter, Crisis, Generation Rent etc. don't take the longer term view and give better advice to those struggling or failing to meet their financial obligations.

     
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    The biggest problem I see is Corporate Lets, they have hijacked the market for sure I have enquirers from them all the time, they are in direct opposition and competition to me grabbing the Tenants that would normally come to me. They don't own the properties in the main but rent the LL's property as a whole, then sub-let it out in rooms making as hefty profit and not bothered about the regulations the Council won't say a word to them, many Letting Agents are involved in this as well mostly the ones that closed their High St, Branches and now operating from Offices / Warehouses on line everything, that's why they went to Uni to learn how to stitch us up. They were hardly noticed until this year when flights stopped and Air BnB hit the buffers because that's what they were doing sub-letting LL's Property making double what they were paying LL. As I said before a Company came to me trying to get hold of my property & told me he had 46 properties this way, to me I recon he must have being making half a million pa, owing no property and no Mortgage yet under the radar. The change in market conditions meant they have switched to grabbing regular renters which some of them normally would come to me, This goes for Private households also they were doing Airbnb big time now they soon switched back to Lodgers again all taking away from us and everything that we have to comply with that they don't.

  • Paul Barrett

    @robertbrown

    Yep I totally agree with your contentions.

    But for me this eviction ban and even the way it was going before CV19 made me want to substantially de-risk.

    I totally get that leverage is great and a highly effective investment technique.

    Unfortunately that effectiveness disappears when a tenant stops paying rent!

    I never factored in paying 4 mortgages due to 4 lots of rent defaulting tenants.

    There is simply no way I could afford it and none of the occupants could I ever achieve RGI or guarantors on.

    So despite my agreeing totally with you about the effectiveness of leverage I cannot risk any longer being exposed to rent defaulting tenants.

    It is a tragedy that the very effective leveraged BTL business model is completely undermined by the the completely dysfunctional eviction process.

    Because of all these reasons I am forced to leave the leveraged PRS.

    I can no longer risk rent defaulting occupants who are protected in their fecklessness by Govt who intend to make things even more difficult when the AST and S21 is abolished.

    For me despite the undoubted profitability I am no longer prepared to risk tenants to pay rent if I can't get rid of them quickly if they stop paying rent.

    I envy Australian LL who can get rid of feckless rent defaulting tenants 2 weeks after 1st rent default.

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