Buy To Let Blog
Not our comments but buy to let blog comments
Blog: My situation: 1) Only 13 years to retirement 2)Personal pension plan that will only cover basics (reluctant to pile additional cash to improve) 3)Sitting on a four-bed property in a very desirable area with no mortgage and any other debts 4) On retirement the plan would be to trade down, buy a flat(s) or rent out existing house for corporate lets and live of rental income 5) Currently don’t have massive amount of savings for deposit (£25k just helped son’s to get on the property ladder)
I feel the need to do something know, so if anyone is or has been in a similar situation and taken the plunge, I would keen to take any advice and hope the above will stimulate conversation, although having just taken a look at the date of postings / site activity, I’m not expecting too much.
Blog Reply: Well, I took the plunge about 7 years ago and am now living on my rental income and a small pension. In those days, as I have posted before, rental income was 10% of the value of the property, and this value was increasing at 10% per annum. Total return on investment therefore 20% and any investment returning a gross 20% has, by the definition of the financial industry, got to be a very high risk one!
As one, all the financial advisors in the world told me this and very strongly advised me not to liquidise my capital but to keep it invested with them (at a return of about 5%!)
Result, stock market collapses, pension industry does likewise, house prices start showing increases in excess of 20% and rents drift gently upwards. This has resulted in every man and his dog jumping on the property bandwaggon which was one of the things causing house prices to make such large gains in the last few years.
These days, the situation is different. Rental returns have dropped to a level at which they cannot support even an interest only mortgage in some areas let alone pay the other costs of renting property. Thus money can only be made by buying, refurbing and selling houses. Alternatively a very long term view can be taken, rental income from a property can be subsidised in the hope that rents will increase eventually and further returns will be obtained by capital growth.
Recently, the conditions for obtaining a Buy to let mortgage have been relaxed. Thus it will be available to more people which will fuel an increased demand for and hence the price of rental (investment) properties. To get in as soon as possible for this reason may be considered, but the house price inflation caused will oblige the B of E to raise the lending rate. Doesn't it get complex?
I would be inclined to recommend investment in Buy to let properties only to younger people who have plenty of time for properties to appreciate. However we are in a period of low inflation at present and financial fashions change. About 30 years ago I can remember considering purchasing a detached house which would have cost me £39,000 (Worth about £300,000 today) I decided against it because on my income I could only afford to cope with an interest rate rise of 0.5%. Within 3 months of turning the property down, the rate had risen from 9.75% to 13%!!!
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