Property Markets

[andrewducker]

Just throwing around some figures and briefly considering buy-to-let. It makes _no_ sense in Edinburgh, as far as I can see. Monthly rent for a decent place like this is £900 for a three bedroom place. Wandering over to a mortgage calculator, I note that for £900 mortgage repayments I could borrow about £130k, on a £160k place. Which would not get you anything like as nice a place as that, nor as close in.

Baffling - is buy-to-let as poor an investment elsewhere in the country?

Comments

[surliminal.livejournal.com]

Not sure but I suspect it makes sense if you have capital knocking around - return on stock market is por and uncertain, property goes up c 25% and obviously mortgage lower if capital sunk in.

[autopope.livejournal.com]

That's exactly it.

Say you've got 30K sticking around. You borrow 130K, replay 900 a month, and actually have about 700 a month coming in from some tenant, so you're paying 200 a month.

A year later, say your capital asset has risen 10% (I'm assuming a poor market, by recent standards), from 160K to 176K. So your 30K investment has made you a profit of 16K, for payments totaling 10K (if you left the building empty), or an actual net outlay of 2.4K (given that your tenant is paying most of the mortgage).

[andrewducker]

That was the conclusion I came to on the bus over - the only reason to do it is because house prices are going up so much. Liable to cause problems when interest rates go up enough to slow/stop that. Of course, when it's not a worthwhile investment it will probably cause enough people to move their investments elsewhere to cause a slump.

[ripperlyn.livejournal.com]

Plus, at the moment wouldn't the people renting have paid a lot lower for their property anyway? So in a few years, the property that you formerly charged 700/month for you can now charge 1000/month for, while your mortgage payment has stayed the same at 900/month.

[a-pawson.livejournal.com]

That would be the case if rents had kept pace with house prices, but following the ridiculous increases in house prices in the past 5 years, that hasn't happened, making buy to let a very poor investment in most parts of the country. Buy to let only really works because most landlords bought the proerty a few years ago at a time when rents were comparable to mortgage repayments.

[perceval.livejournal.com]

Have you read Rosie Millard's column in the Sunday Times Home section? From what she's saying, it only makes sense to go into buy-to-let if you are geared strongly enough and if interest is sufficiently low. or if you're prepared to scam off students. 5.25% base rate is not exactly conducive to good deals ...

[ami-bender.livejournal.com]

It does still make sence, but only if you have a lot of spare cash. If lets say you ad a spare 100k. you then buy house. Rent covers mortgage and repairs, plus little left over. You then have a good investment as real return is when sell house. The problem with buy to let is how much you have to pay bank.

[andrewducker]

That makes sense if property prices continue to go up as they currently are. At the moment the differential between the cost of the place and the rent you get isn't massive - but if it gets much bigger then it won't be a great investment any more and the market will stall.

At which point the whole reason people are buying flat (to make money by selling them on) fails to hold any more, so people will start to sell them on, prices will start to drop, and if we're not lucky we'll end up with a crash.

[ami-bender.livejournal.com]

Yup. But the market still has a long way to go before it peaks. Edinburgh is unusual in that everyone wants to be in the centre, which will keep it high. And judging from examples in the states and london, crashes tend to be temporary glitches. As far as I am aware big losses tend to be made primarily off of paying a lot more then valuation

[fjm.livejournal.com]

It's a very good long term investment (hence we are hanging on to our house in Reading for a few more years) but it is not an income generator unless you are a builder (like ny Dad) and can buy terrible properties and bring them up to rental condition (which is stricter than purchase condition).

[a-pawson.livejournal.com]

Yes and no. Remember with a buy to let mortgage you don't normally repay the capital investment, so the monthly repayments are based on interest only terms. An interest only mortgage costs significantly less to repay per month. You are then relying on the combination of rental income, and the property increasing in value, to make back your money.

The other half of the answer is that they used to, but the frankly ridiculous increase in house prices in the past few years has made them a poor investment. House prices have risen by 150% in the past 10 years, and that figure is adjusted for inflation. Rents have not kept pace with property values, and cannot since people renting cannot afford such increases.

The much fortold price crash shows no sign of happening, yet with the current level of prices, the number of people entering the market as first time buyers is going down all the time.

I know Susan and I are among those who cannot afford to purchase even a small flat as we have never stepped onto the property ladder, and would have to borrow somewhere upwards of £100k to even buy a small flat. Why bother when we are renting a 2 bedroom house for £450 a month. A house which is currently valued at about £120k, and if we bought it, would see us having to find mrtgage repayments in the region of £750 - £800 a month plus all the added costs of owning property. Financially our landlord would be best advised to sell up and reinvest the money in something else, but when he bought this place, it probably cost him less than £50k, so it is still making him money.

[channelpenguin.livejournal.com]

Yup. Same in london or surrey. People are stoopid. Only reason i am buying is cos it is costing me less to borrow the dosh for the 2 years that i will need it than prices will go up in that time.