Do most Buy-To-Leter's seek equity gain or rental income???

I was recently looking at large block of identical apartments in large new development in surrey. Some flats were due for completion next month and were for sale at 200,000 each. Others had already been finished and were for rent at around 900/pcm with various lettings agents.

From the above figures the rental income would appear to be about 5% of the marketed price. Is this typical? I'd always presumed something nearer 10%?

One possible explanation is that the landlords expect to make additional money from property value growth. Is that plausible? Is it typical?

Opinions welcomed.

Geoff

Reply to
Geoff
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It used to be so.

It used to be so. Perhaps new entrants are still expecting capital growth.

I don't believe that such growth can continue.

I know, let's start another house price thread.

tim

Reply to
tim

In message , Geoff writes

The original; 'buy to let' boom worked because you 'geared up' the transaction by borrowing. As the rental return exceeded the interest rate, you could easily obtain 15 - 20% return on your deposit. Then house price inflation came along and the investors got a bonus. Then everybody else piled in sending prices rocketing and existing investors got capital growth as well as rental yield.

My own theory is if you want to invest, then do so for rental yield. At the moment the yield isnt good enough.

If you buy today for capital growth, then you are a speculator, not an investor.

Reply to
john boyle

Buy to Let is a relatively recent phenomena which has recently exhibited irrational herd-like behaviour. In general the BTLer

*expects* house price inflation. As you have discovered, at these prices the yields don't cover the cost of finance and price rises are now essential for them to avoid losses. Much of the recent BTL activity is just a speculative, leveraged punt on property prices.
Reply to
Sammy

"Sammy" wrote

Obviously just all your own (extreme) view ...

Reply to
Tim

Far from extreme. It's pretty much in accordance with those of estate agents I've spoken with in the last few months. They blame the flush of TV programmes pushing BTL.

Jon

Reply to
Jon Green

If my view is extreme, it shows how far the market has over-shot.

Reply to
Sammy

That's hardly an extreme view!

Reply to
Peter

"Peter" wrote

Really? Let's see :-

"Sammy" wrote

Not all BTLer's are especially interested in growth. What about BTLer's who are in long-term, for the *yield* - who don't intend on ever selling? [Using BTL income for their "pension".]

"Sammy" wrote

property prices.

Do you really believe that a good proportion of *current* ("recent") BTL purchases are made just for a gamble on further substantial gains in house prices??

Reply to
Tim

To be fair, he said "in general", which admits exceptions.

You can't just take his "recent" and interpret it as "current". That much of *recent* buying to let, taking this to mean over the last, say, 5 years, has been mainly in anticipation of gain, and that most of the rest has been at least partly so, can hardly be denied.

As for *current* buyers, they *all* need their heads examining. Short-termers should realise there's unlikely to be much more gain, if any, to be had, and long-termers would also not be well-advised to enter the arena at this time, as they would be locking themselves into much less favourable yields than had they acted some years ago.

Reply to
Ronald Raygun

"Ronald Raygun" wrote

Exactly - but a large enough minority (or even majority) can hardly be classed as "exceptions".

"Ronald Raygun" wrote

Do you consider all of the last 5 years to be "recent", in regard to BTL? Isn't that around *half* of it's longevity?

Isn't it like saying that 2 billion years ago is within "recent world history"?!

Reply to
Tim

An overall majority perhaps not, but why not a minority? It depends how far we generalise, of course. If Sammy was focusing on the recent, I hardly think it's wrong to say that most BTLers would expect gains, even if they were not expecting to realise them (they might instead use the equity gain to increase their borrowings and hence the size of their portfolios).

But it doesn't matter what I think, we have to guess what Sammy meant.

I don't know. Perhaps. Maybe since BTL mortgages started to be actively marketed.

No, it would depend on the context of the discussion.

Reply to
Ronald Raygun

If they just wanted income why not buy gilts? Why go to all that extra risk if they do not expect to get some capital appreciation? I assume you understand risk vs. reward and CAPM?

Yes, although I used the words "much" and "recent". Hence the decline in BTL activity: there is less upside in prices than in previous years (I would say there is a substantial risk of price falls) and the yields are no longer attractive at current prices.

Reply to
Sammy

In message , Sammy writes

Because they dont actually understand the economic principles which you suggest, or any others for that matter.

Property to the ordinary general public is a somewhat emotive, and strange, investment, and there is a tendency for the winners to be somewhat naive but extremely lucky.

Everybody knows some lucky ba$£"%d who owns lots of properties which they bought many years ago, and which generate a fabulous yield, and which are worth a fortune. Many people want to emulate the "lucky ba$£"%d", and know that they need to own property to do it.

In the long term, those who stick with their properties, (having discovered that they dont necessarily make a quick buck or a fabulous income), will almost certainly achieve their goals. Rents will increase, values will increase, and loans will decrease. The capital growth is leveraged, unlike if they had bought gilts or other similar investments, so is actually very dramatic.

Agreed, which lends support to my suggestion that buyers are naive and lucky if they succeed. Some do, and some dont.

What is Godwin'ed?

Reply to
Richard Faulkner

There's a silly "rule" called Godwin's Law which says, in a nutshell, that if a mayor of London uses the N-word, he gets kicked out of office.

No, actually it says that if a usenet discussion ends up in a slanging match, sooner or later someone will use the H-word or a related term of endearment in an accusatory way of the other participant(s) and this then instantly disqualifies them and ends the thread.

Needless to say, no-one pays the slightest attention to it, but people mention it from time to time because they think it makes them look clever.

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Reply to
Ronald Raygun

It was the first time I'd seen it (in Mortgage question... go to interest only for a while?) and had to look it up. I was then just covering my arse in case I upset the Godwin caller - "D" I recall - by reviving the thread. I admit I may have thought it would make me look clever too. There's a time and place for silly rules, but in that instance it was probably over the top - the OP was particularly stubborn and we were all getting a bit bored.

Reply to
Sammy

Good God, the house I rent out goes for 3.25% of it's sale-able value.

Fortunately, that covers the mortgage.

Reply to
Ben Blaney

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