Lorna Bourke: my top 10 tips for buy-to-let investors

"Now may not be the best time to invest in buy-to-let – house prices may fall further" Wise words Lorna. Losing 20% or more of the capital value will force you to hold the property for the long haul and wipe out much of the profit. Rising unemployment and falling benefits will reduce yield. Buy-to-let may well be loss making if you get in now, even viewed long term.

"local knowledge and experience is everything"

Probably why the BTL landlords outside Lorna's patch make more money because they don't pay stupid prices for the dwellings. You can buy houses in some areas from under £10,000 and rent them to the council which even pays for the upkeep, guarnteed rental income, so, for the 25% deposit on a £250k house you could buy six elsewhere and get rent of £500 each with no mortgage and no worries. No balance in this article, no more balance in my response but you get the picture, take off those blinkers. You could even buy land and build dozens of houses on it for less than it costs to get a portfolio in London, and, what happens it interest rates are 15% in three years time?

I do agree with the top 10 and its commonsence really

BTL is a great investment I write on this blog a lot and ive seen the good times and the bad

I really cant think of anything that could bring me the rewards of property investing

I retd from the rat race aged 40 and have build up an investment that is now in the millions

a dear freind of mine who was a multi millionair said to me money can not bring happyness but it can bring freedom to do the things in life that you want to do on your own terms

I now have the time to do what i want to do and buy the better things in life and yes i am happy and its mostley down to BTL

I will stay in the market for life and hopefully my son will carry on when I leave this earth Subject to IHT

There will always be a market for BTL when ever you join it it can be a rough ride at times especialy at the start but thats the same as any other bussiness

Look at the large Landlords such as HM Queen Duke of Westminster they are not stuppid and if its good enough for them its good enough for me

I know there is a lot of landlord who are slagged on this web site but i can tell you the landlords i meet are upright and are there to make a liveing or a pension

If Property is for you get into it now you could not pick a better time

I know i will get some comments slagging me off AGAIN but i point the finger at the folks who put me down and say are you doing on monday morning what you want to do and enjoying it

I will be im off to Cyprus to meet freinds and have a good time thats what life is all about

Dislexic

Also

1) Don't underestimate the difficulty of finding a suitable tenant - the market is awash with empty btl flats at present.

2) Remember that you will have to pay your share of common charges for the building whether it is let or not.

3) And that council tax could become payable if the property remains unlet for a long period.

It is definitely not just a case of sitting back watching the property appreciate while the rent takes care of the mortgage interest and day to day expenses - you need to be willing to commit cash on an ongoing basis and have faith in the long term appreciation of the property.

4) After all this, if you do manage to make a "profit" it will be subject to Capital Gains Tax - i.e. you take all the risk while HMRC take a slice of your hard earned gains for doing **** all!.

Dear, dear Dislexic Landlord,

Bit defensive aren't you?

If you genuinely hope that the likes of my priced-out kids are doing what they enjoy on a Monday, then I genuinely hope that you are able to sleep easy at night knowing that you have stolen all your newly-gained wealth from the subsequent generation.

At least you do sound fairly grateful that you have your livelihood and pension covered, whilst the young are priced out of the market due to BTL landlords like yourself, thus forced to rent and prop up your investments.

That's not to slag you off, by the way. That's just to remind you of how lucky you are to have been able to buy into property amidst a gigantic credit boom and then "saved" by a near-zero interest rate policy.

I do sympathise for my poor kids who are forced to scrimp and save a massive deposit whilst they are forced to rent. Wasn't like that in my day.

Prices are set to continue to drop over the next couple of years. They were still 33.8% over-valued as-at July 2010, according to The Economist:

http://www.economist.com/node/16542826?story_id=16542826.

Therefore I can only hope these credit conditions may "save" my kids from buying into an over-priced illiquid asset, and they may be able to get a foot into the property market (if not the vanquished property ladder, lol!).

That said, I find it a little unethical and cringeworthy that you publicly boast about how much you enjoy your jetsetting life of leisure. A little humility wouldn't go amiss.

After all, it is the BTL landlords (via the credit boom, in the years of "cheap money") who puffed up the property market and have caused the economy to blow up.

Your lack of self-awareness in this regard - and consequent dearth of repentance - makes you currently sound like an exceptionally warped version of Harry Enfield's LOADSAMONEY character, lol! :-)

Hee hee hee. ;-)

Landlords have been around for as long as prostitutes have plied their trade. Humans can, and will, exploit any market which exists.

However, this supposed dyslexic is more likely to be a wind up merchant who thinks he/she has a sense of humour.

Biggest mistake ever allowing easy access to BTL mortgages. It decimated the first time buyer market leaving a generation of would be first time buyers out in the cold.

It introduced a number of inept and incompetent amateur landlords into the market who have no idea how to manage properties. The sooner the government license these people the better.

I knew I would have comments

I can only say to you that when i buy property at present in the NE I can never out bid a FTB

The house prices in the NE are still affordable to FTB,s so maybe your children should move

I know the south is a differant kettle of fish

You possiblly too have made money on property so I would think you children will be in your will or are you going to give it away to charity because its its the correct thing to do because makeing money is a bad thing

Point the finger three point back

FAO Evan

I am not here to wind up anyone I just tell the story from a Landlord

who has made a good investment in my future and my childrens future

Interesting article. But can anyone comment on the yield that professional investors are looking for. My estate agent says 7%, the article says 5%.

Stuart

I personaly wont buy a property with a yeild less than 8%

best of luck

Dislexic

Would you buy now? I fail to see the logic of your argument. If property prices fall by 20% in the next three years then the value of a £200,000 buy-to-let would go down by £40,000 in the three years. This equates to over £1,000 per month depreciation so the first £1,000 income per month would be wasted in devaluation then you have to get profit, interest repayments, maintenance, management fees. This would mean for it to be just about worth while you would have to be able to rent out a £200,000 property for about £2,300 per month. A little high me thinks.

Quite an interesting article and a good cross-section of replies.

I had 8 years investing in Buy-to-Let after cashing in my equity portfolio at the end of 1999 as I thought that shares were due a correction. Back then pensions were a waste of time and are even more so now. I would not re-enter the weak housing market as things stand at the moment and my decision is based on both fundamentals and house price charts. If and when I do buy again it would be with no less than a 50% deposit. At the moment I see no point in risking money for a 5% Yield even if house prices do not fall over the next couple of years. One can get 4% on fixed rate cash deposits so why bother.

Evan Owen makes a good point about buying the much cheaper properties and renting them to the council, great if they really do cover the upkeep and repairs. If you lived within a short drive of these areas, yes it could be a good investment but I would still wait and see what the LHA levels would be following the cuts next Spring. If you live too far away then it is too much hassle believe me.

Anonymous 2, I can understand your concerns regarding the difficulties faced by your children ever getting a chance to get on the housing ladder, I guess you may be in your 40"s or 50"s but I found it hard in 1992 buying my own first house. I had to buy in a fairly rough and noisy street and even stayed there for a few years after entering the BTL market using home equity to fund deposits on 2nd and 3rd BTL properties.

This property boom was not the first and will not be the last, like shares, collectibles etc there will always be cycles and the main boom in the BTL landlord numbers did not start till 2003 after the large rises in house prices of 2000 to 2002. The newer LL's were just like the Tech boom investors who bought in too late into the cycle back in late 1999. In the second half of 2007 warnings were widespread about future falls in house prices but surprisingly few LL's sold up. In fact Inever even had to advertise my houses or sell through an Estate Agent, each house was bought my a new Landlord!

During the bigger rises of 2000-2002 it was more like the Estate Agents who were behind the house price rises and many properties were selling for full asking price or above, this was helped by the easy mortgages to be ha then, I even used credit card cheques as a deposit on one BTL house.

I accept people's arguments that homes are for living in but a lot of ordinary homeowners also enjoyed taking large further advances on their own homes to buy new luxury cars and take lovely holidays. To be quite honest with you, I invested for the potential rental income profits (which were in fact eaten up by repairs and maintenance). I did not expect the rises of 19% and 23% that came along in 2000 and 2001 which fuelled the capital gains I ended up with when selling.

My reply is not about what I was fortunate to achieve but is a comparison about investing in BTL 11 years ago and now. I do think that market pressures will make houses more affordable over the next 5 or maybe 7 years as wages should start catching up and we may see a ratio of 3.5 to 4 times average earnings.again by then.

FAO Ano 3

at last a person with sence and i think you have hit the nail on the head

I buy for long term in fact ive never sold a house i have owned I buy on yeild only so a house price inflation is not for me

If I sell a house i hve to pay tax ect and i them have to invest in something else prob at a lower yeild than im haveing at present

I only buy with a 8% yeild and with 30% deposit and a mortgage fixed for as long as i can find

But its great to here your views

Thanks Dislexic Landlord for your kind reply. The only reason I sold up was because I had the chance to become Non-resident and try a new life in a warmer country but it is swings and roundabouts. As you probably know the CGT can be legally avoided by residing in another country for 5 full tax years if you time the property sales right. This is what I took advantage of but it defintely ain't all a rosy picture living across the other side of the world.

You too have your reasons for staying invested for a longer term than I did and averaging out the price of your houses is the same method I use when buying shares and funds, it works well.

Good luck with your future investments too.

I am not a BTL landlord and am currently renting having sold up in 2004 (a little early as it turns out) which goes to show bubbles go on for longer than even clever economists expected.

Moralising whilst interesting and very tempting is misplaced here because people will always try to make money if they see an opportunity. Anyone unhappy with the current state of affairs needs to lobby their MP for a change in policies which produce effects they are unhappy with. Blaming people for making money legally is a waste of energy.

Yes the market may be squewed in some ways and the government of the day has a lot of influence. The previous government has just allowed the biggest credit boom in history with the best advice available to them they allowed this thing to get out of control. Blaming banks and other credit providers is again I believe wide of the mark, they responded to an opportunity, immoral maybe but a fact nonetheless. The government sets interest rates and controls the money supply which it seems most politicians of all parties use to gain as much electoral credit as possible. The fact that it always ends in tears seems to be lost on them (1989 anyone?).

I believe it could be a long way to go before the credit bust plays itself out, possibly in all sorts of unpleasant and unpredictable ways. I wouldn't necessarily expect a nice neat recovery like we had in 1995 onwards, nice though that would be (so I can get back into the market).

I have benefited from being a homeowner immensely but have also been burned by it in my younger years and would normally much prefer to invest in property than the financial markets, including BTL.

However property is a very illiquid investment with all sorts of challenges and I think the normal 5 year view needs to be 10 years at the moment unless you have plenty of cash to weather some very lean times as has been mentioned above. I respect the experienced professional landlords who know their market and their business. But for anyone else the risk of loss at the moment is very high. Don't let the British obsession with property ownership blind you to the risks.

I can recommend (as a satisfied reader only) books by Fred Harrison who has done a lot of research into the property market going back centuries if you want to learn more about economics and house price cycles.

Good luck to all.

with little or no capital growth expected for property. 8% gross yield (very ambitious) yields perhaps only about 2% net after the costs of mortgage, maintenance, admin , voids etc. There are a lot better investments with less risk and better chances of growth.

Clive 8% is my Min Property yeild property I have had for 20 years is now yeilding 45% and growing where else could i have a yeild like that and only put down a few thousands of pounds

let me give you the example

Cash Input in 1988 £2500

Property bought in 1988 £12000

Property value in 2007 £95000 30% less in todays value £66500

Rental Income in 1988 £1430 Gross

Rental income in 2010 £5400 Gross

Please tell me in the long term where I could have a return like the above and I would invest in it

Just goes to show the power of BTL in 20 years

Funny that BTL landlords only ever seems to base their calculations on the mortgage costs and conveniently forget the 25% deposit. The other thing is that the opportunity cost is never factored in ie what else you could be doing with the money? If I was only achieving 5% gross on a high risk investment where you had to hold the asset for 10 years I would move my money elsewhere. But perhaps BTL is for people who only read the financial pages of the Daily Mail.

I have owned both residential and commercial property and commercial is way better , much less hassle , generally more secure and as the tenant pays for repairs, insurance and so on, ultimately much more profitable .

The writer of this article and also dislexic both write solid good sense.

Nice to read something from people who know what they are talking about

I was a BTL landlord. Its not the hardest way of making money but its not so easy as many think. I got sick to death of defaulting and dissapearing tenants and sold up in the end, -and yes I was using a properly qualified agent. The hassle was just not worth it . I would not do it again or encourage anyone to do it. The return on invested capital now in the area I live is about 4.5% gross so that says it all.

OK so it seems that if you you either bought a house very cheaply or a long time ago before the housing bubble then you can make money in BTL. I suppose people entering the market now should remember the old investing adage that "past performance is no guarantee of future returns".

Bear in mind too that it's also about the least liquid investment you can own. I sold my house about 3 years ago and have made about 60% capital gain since then in bullion and shares. (Whilst house prices have fallen 9%) I can sell those investments in ten minutes if I want to. I know people that have had houses on the market for over a year now and still can't sell.

Also if Lorna is right and after all other expenses, fees, maintenance, and unlet periods the yield is about 5%. Well inflation is stuck at >3%. That effectively leaves you with a yield of 2%. On a depreciating asset.

It might make sense when prices are rising for sure but in the current climate of falling prices despite interest rates at 0.5%...no thanks.

Loads of different opinions and they are all correct!!

The FSA has another opinion, well various opinions to suit, or should I say it depends upon the circumstances of the day.

I live in a coastal village in Dorset. Prime sort of location for second homes or holiday rental you might think but there are houses here which have been on the market for 4 years.

If you think a private internet university charging undergraduates a few hundred to study from home won't happen in the next 10 years then go for BTL in University towns.

If you think the tax take over the next 5 years from Financal Services firms, who are writing off 100s of billions in losses against UK tax, can continue funding the North, the Midlands, Scotland, N Ireland and Wales for the next 5 years then go for BTL.

But if, like me, you think govt will soon realise it has no choice but to do for the rest of the country what Thatcher did for London Docklands and Financial Services, ie scrap planning and zoning and de-regulate manufacturing and business, then don't do BTL.

To put it simply, when a family's spending exceeds income for a number of years, the family cut spending and increase their income by doing more work. For UK plc more work requires getting rid of the rules and regs that price out manufacturing and business. By far the biggest of these is planning.

I think in 12-18 months, when other economies are continuing to recover, but the UK isn't, and the welfare bill is our of control, weisn't, we will see this change.

I agree that planning is the biggest obstacle to all sorts of things in the UK, from housing to growth.

However, gold plating legislation is appears to be a particularly British disease and there are so many people eearning a crust from it that making it workable would make them redundant. But those who took all those 'bungs' and stashed it away will be OK.

I do think the BTL market has been as much to blame for the house price boom as the cheap mortgages that were available.

As a would-be 1st time buyer, with too small a deposit, I think the best thing the government could do in order to improve conditions for 1st time buyers is tax BTL investors severley or ban BTL mortgages.

Obviously that is a biased view as a non-home-owner, however as the government is always bemoaning the poor would be 1st time buyer they could at least take action to improve things for them as the situation for them is getting worse with every that month passes with low interest rates.

As far as BTL's go with a more unbiased hat on... if I had the money I think dipping a toe in this market is sensible enough so long, as the article states, you are prepared to play the long game.

Anonymous 2

Its a shame you didn't invest like the rest of us succesful property investors then you would be able to set your kids up for the future.

Hopefully they can learn from your mistakes.

Return on capital. I think you have missed the point; The return on capital is made from your equity and not the loan which the tenant pays for. I personally do not like the BTL market. Rents move around with supply and demand, interest rates change, property quickly becomes shabby when let and requires a refurb every 3 years or so. It can work maybe over a period of 20yrs if you are prepared to wait. I prefer to buy shops or small industrial units, the tenants pay for everything, even for the 5year the rent reviews. The agents charge BLT owners 10-15% of the rent, that's more than you will make. Stay away.

@Anon 4 - You are just a wind up for sure! ;-)

You could call my decisions mistakes but luck is always easy to identify as either error or cleverness in retrospect! Did property look like such a safe bet in 1991 when I bought my first place? I think not. In fact people were warning me OFF property!

The gambler always walks away from the casino feeling so, so smart when they beat the banker.

Also, property investment has questionable ethics to me. But that's just personal choice.

I only wanted a home to live in and not an investment. Now the mortgage is paid off and that suits me perfectly.

I think my kids will be OK but to raise the necessary multiple 20% deposits off the back of my equity is a little unfeasible to say the least. That said, the very fact that banks are demanding 20% deposits indicates their confidence in property depreciating by at least this amount so it's no big worry. For the time being my kids remain at home, working and saving until they can get places of their own.

But the likes of BTL landlords did get lucky, and the consequence is that the property is massively overpriced, economy is broken and we are facing another corrective slump in property prices and no doubt years to come of uncertainty and sluggishness.

That's inflation and low job availability folks. Some future we've handed to our kids, eh??

And it's not just about my kids. It's about a whole generation of their peers who have no idea how they're ever going to get on the property "ladder". Unfortunately folk like you climbed the ladder and pulled it up after themselves!

I think in cyclic terms it'll be about 5 years or so before property bottoms (probably in "real" terms if not nominal) and people will be warning folk off property just like I was when an FTB-er, back in '91.

And in the meanwhile I'll still be against property investment from a moral point of view, investing instead in Faberge eggs, fine art and classic teddy bears ;-)

Grant,

We will all have some biased views on this particular subject but BTL was only quite a small part of the House Price Boom.

In 2005-07 no more than 10% of mortgages were for BTL. In the previous years even a smaller percentage because the herd were only just starting to jump on the bandwagon, too late again as some have found out. Much more of the rise lies with the banks for easy credit (sign just here Sir, you got a mortgage!), also Estate Agents, newspaper articles and property porn TV shows.

There is a 28% Capital Gain on resale profits plus Income Tax at whatever rate on the Rental Income. Of course CGT can be reduced if you don't mind moving into the BTL property for a year or more, or you can do the Non-Res bit and legally avoid it in much the same way as other business owners do.

Ban BTL, not a good idea - not enough social housing like in the pre-Thatcher era

@Anon 3

"Ban BTL, not a good idea - not enough social housing like in the pre-Thatcher era"

Damn! That's another thing that is disgusting about the whole furore! My tax money directly swelling these parasites' coffers!

Maybe that's the only real answer... just get the kids to get on the dole and play the system. Works well for so, so many state-dependent layabouts.

Screw the workers. Lie back and be a BTL landlord or lie back and get your lifestyle funded by the state!

Particularly cynical today! ;-)

Anon 2,

Let's look a bit more widely at our comments if ok with you.

The layabouts on the Dole will always be there because for many families it is not worth working for a low to average wage, this is bl**dy crazy. The economy will always suffer boom, busts and an occasional depression and throw in stagflation, deflation (Japan) and hyperinflation (Zimbabwe and Weimar Republic)

Right now easy credit has screwed it for many countries and without this loose lending practices maybe the economy wouldn't have suffered like it did in last 2 years.

Workers will always be screwed and also many small businesses fail, that is why I turned to investing in equities first and then BTL for the good years. Bosses screw the average Joe worker while they cream the profits that Average Joe worked his butt off to make for his Boss, so we are left with 3 choices, Start a Business, Invest in flavour of the month and actively manage that investment or Put up and shut up which is the option that leaves followers struggling to make a living.

For me no BTL for the next 5 years or so, too easy to make gains on Oil, Gold and Asia Pacific funds for the last 18 months. In another couple of years it could well be something else that will turn good.

I was sick of working 2 jobs to just pay my mortgage, bills and food back in the early and mid-90's, glad I took the risks after being so close to bankruptcy through spending on those easy to obtain credit cards!

Have you seen some of the first time buyer's? barely literate, expect everything to be done for them. Blame anyone or everyone for anything that happens. You have seen the comments of some of the former landlords, running away in the middle of the night is a common solution to the younger generations problems today. The rental market is going to increase, but the problems with tenants are going to increase faster. Businesses maybe forced into providing accommodation for their essential workers. I rent to companies for their staff, gaining the benefits of both commercial and residential lets.

Anonymous 5 . Talking of being barely literate you should learn to use the apostrophe properly, you don't need it for plurals, only possessive.

Have a look at this .

http://www.telegraph.co.uk/finance/personalfinance/8018141/The-golden-era-of-home-ownership-is-over-says-mortgage-boss.html

ive really enjoyed reading all the coments on this articale..

some really well thought out answers and some bits of humor,

thanks everybody..