House Prices V's Rental Income

[Colincbayley]

I wanted to pick other landlords minds on this subject.

I have had 3 properties offered to me this week via estate agents, all £10 - £15K BMV. (Sounds like a good deal)

I've compelted my research and checked other property values in the area, and the prices seem about right.

However, due to the crazy rate of property inflation, I can not get any of the rents to stack up for mortages.

One example.

Purchase price £160K
Valuation should come in at £175K
Market rent £625-£650 PCM

Now with an 85% LTV I would need the rent to be nearer £725-£750PCM to secure the mortgage.

I would love to do the deal's, but without chucking even more money at it I can not see how to finance it.

Two questions for anyone who has a view on this subject.

1) Is this set of circumstances the same nationwide or just in certain areas ( i'm in Essex )

2) Can anyone see anyway forward with such deals if prices continue to increase much faster than rents and if interest rates continue to rise.

Any comments or observations welcome.

[P.Pilcher]

You are describing the current market situation which applies, in the main, over the whole country. It has been brought about by property now being an "accepted" type of investment by the financial world and the collapse (due to the actions of Mr. G. Brown) of the U.K. pension industry. Thus the demand for properties on a BTL basis has pushed up the prices to current levels. Seven years ago, any financial advisor would abhor the idea of investing in rental property and the collapse of the pensions industry was just starting. Then property was appreciating at 10% per annum, and rental returns were a further 10% thus an investment in property would provide a gross return of 20%! The financial industry had not invented BTL mortgages either.
So unless you want to invest in a house of multiple occupation and can accept the local authority licencing requirements which may give you a gross return approaching 10%, you are stuck with the market as it is! You have to decide whether investment in BTL will be worthwhile for you in the long term and rents will rise eventually to drive your investment into profit, accepting the losses that you will make initially, or that the capital appreciation of your investment will eventually provide sufficient profit for your needs. It is a very difficult decision.
Of course I can post about this smugly as I disregarded the financial advice I received seven years ago, reliased my assetts and put them into property. The return I am now getting is well in excess of 10% on rental income as rents have risen, and as for the capital appreciation.........

P.P.

[lorenzo]

There is a old maxim in investing: Buy in the gloom, sell in the boom.

I don't suggest anyone sell their BTLs, but consider this: Housing around the world is way overvalued by any historic norm, no matter which measurement you like to use. By the same token, debt is also at ludicrous highs.

It would not take much of a hit to the general economy to cause a domino effect which will knock over the world capital markets, including housing values. Does anyone recall the early 90's? Housing values tanked; it is possible for houses to go down.

Generally when housing becomes overvalued, it stagnates while inflation catches up. But we are in a low inflation environment, it would take a long time for this to occur at present rates.

I wouldn't try to predict what will happen, but one must be cognizant of the risks that are currently to the fore. There is serious trouble in the US housing markets which could spread to the UK.

I'm in the market for more BTLs too, but only at value and I don't see any.

FWIW & DYOR

[Colincbayley]

There is a old maxim in investing: Buy in the gloom, sell in the boom.



I'm in the market for more BTLs too, but only at value and I don't see any.

FWIW & DYOR

Hence the probelm!

What are other investors doing?

Selling, Sticking or Expanding?

Is it best to stick for the short term with your current portfolio or expand into an over inflated market?

I am aware that every expert in the UK will have a view on this subject which will vary from doom & gloom to growth at 40% PA.

But I think the best views will come from other investors.

I can't see the market crashing or even slowing down myself ( time will show if I am right or wrong )

Any one else of the same view?

[Worldlife]

I was interested to purchase the flat above the one we have on current AST.

The market price of just under £200,000 and a potential rent of £750 would mean a substantial injection of capital to balance the books.

The advantages of owning the entire property, although attractive, don't really make financial sense.

How much premium would you pay for the joys of having sole as distinct from a joint freehold, and owning the entire building?

[the baldman]

Like all investments. There are good times to buy and good times to sell. When rental yields are so low it is difficult to see the financial attraction of investing in property.

Property has been on an upward trend for over 10 years. Property has to be viewed like any other investment. In most other asset classes all booms usually end in crash or at best stagnation when prices detach themselves from economic returns . The key of course is picking when this happens.

The Uk property market has remined resilient thanks to the availability of cheap credit. If we see a reduction in available cheap credit this may be when the market turns. But who knows???

[Bel]

I was interested to purchase the flat above the one we have on current AST.

The market price of just under £200,000 and a potential rent of £750 would mean a substantial injection of capital to balance the books.

The advantages of owning the entire property, although attractive, don't really make financial sense.

How much premium would you pay for the joys of having sole as distinct from a joint freehold, and owning the entire building?

It's that strange human phenomenon of wanting to be king of your own castle. Rise above it I say ! But then again...if it makes you happy, what price for happiness (if you can afford it!)

[Colincbayley]

Like all investments. There are good times to buy and good times to sell. When rental yields are so low it is difficult to see the financial attraction of investing in property.

Property has been on an upward trend for over 10 years. Property has to be viewed like any other investment. In most other asset classes all booms usually end in crash or at best stagnation when prices detach themselves from economic returns . The key of course is picking when this happens.

The Uk property market has remined resilient thanks to the availability of cheap credit. If we see a reduction in available cheap credit this may be when the market turns. But who knows???

It's true what they say, the man in the street ( or in the case the baldman in the street! ) has more common sense than the so-called experts

[apb1]

@lorenzo
In hindsight, what great foresight you showed at the time of writing this post. I found it very interesting reading these historical posts before, during and after the credit crisis.

Well done!

[jta]

Unfortunately we haven't seen Lorenzo since September 2009. Pity