adrianc
Member of DD Central
Posts: 9,020 
Likes: 4,829
|
Post by adrianc on Nov 17, 2016 18:34:42 GMT
With some experts predicting property prices to double by 2030... ...while others predict a short-to-medium term fall or simply stagnancy. Meanwhile, most real experts admit they haven't got a scooby and are just guessing. If you're genuinely getting a reliable post-expenses, post-voids, post-maintenance, after-tax yield of 6-7%... great for you! But that's the exception, not the rule. Why not a bit of both to diversify? And do you own rental property directly, or do you invest through the various crowdfunding equity sites? Or, again, a bit of both?
|
|
|
|
Post by mrclondon on Nov 17, 2016 18:43:29 GMT
I think a key aspect to consider is diversification, which can be far more easily achieved with p2p, bonds, or equity investments than BTL. The rental market in London is strong but low yield, and whilst yields are higher outside London rental demand will fluctuate as the preference of UK citizens is to buy not rent (when affordable). The concept of individual investors gearing an investment portfolio is rather suspect, and the government is progressively taking measures to reduce the availability of debt funding for BTL as this article in today's Telegraph www.telegraph.co.uk/news/2016/11/16/buy-to-let-crackdown-will-end-the-dreams-of-middle-class-investo/ explains. Being a landlord is a major hassle if you are hands-on, but the employment of a managing agent eats too far into rental yields. |
|
SteveT
Member of DD Central
Posts: 6,873
Likes: 7,918
|
Post by SteveT on Nov 17, 2016 19:01:08 GMT
I've yet to experience a P2P loan calling me at 7am on a Sunday morning to say there's water pouring through the kitchen ceiling. Or one that winds up the neighbours by leaving dogs barking all day. I was a (reluctant) landlord for several years and am very glad now to be out of it!
|
|
ben
Posts: 2,020
Likes: 589
|
Post by ben on Nov 17, 2016 19:15:13 GMT
I would look at something like PP/PM for property. Being a landlord can be a hassle especially if you get bad tenants. Personally only have 1 property that I have rented out for a few years when they finally decide to leave I will be selling the property and investing it somewhere else. I would think the yield after all expenses is less then 5%, loook at somewhere like landbay where you can get 3.75% it is not really worth it for the extra amount.
|
|
jamesc
Member of DD Central
Posts: 447
Likes: 253
|
Post by jamesc on Nov 17, 2016 19:18:20 GMT
Let's say the average interest rate is 12%, 9.6% after basic rate tax. Say you lose 3% of that in lost capital... were down to 6.6%. Weakening GBP and inflation set to increase, the capital is also effectively losing value. With some experts predicting property prices to double by 2030 as well as giving a steady rental income of 6-7%... Which is best, P2P or buying property to rent out? IMHO what you are saying makes no sense to compare two things you need them both to be apples not apples and oranges.
Any rental income is still subject to tax so your 6-7% becomes 4.8-5.6 % and any loss on P2P is tax deductible so using your numbers that is 7.2%.
Your also mention weakening GBP well assuming you are renting UK property then it will be just as much effected as P2P.
Finally you mention a doubling of property by 2030 whilst personally I think that's as likely as Crystal Palace winning the premiership, if it were to happen I think that P2P losses will be very small much less than 3%.
|
|
|
|
Post by mrclondon on Nov 17, 2016 19:35:10 GMT
A doubling over the next 13 years (2017-30) implies an average annual increase of 5.5% ( 1.055 ^ 13 = 2.006 )
Most of what I've read concerning inflation in western economies concludes that excluding unknown unknowns (WW III e.g.) inflation is likely to remain in the 2 to 4% range for the next twenty plus years.
Mortgage affordability vs current earnings is already approaching the limit of what is sustainable, so for house prices to double over the next 13 years implies earnings growing faster than inflation. This can only be achieved if productivity (a long term problem in the UK) improves significantly. However median wage growth is likely to remain subdued in the UK, as any productivity gains are more likely to result in preferential increases to the lowest earners to offset the (assumed) reduction in EU labour following brexit.
|
|
|
|
Post by mrclondon on Nov 17, 2016 20:53:59 GMT
Jeepers , does this help ? This is a unconventional way of looking at the numbers, but might help you. (My treatment of percentages is simplistic and hence slightly inaccurate esp after tax but aids clarity) Assume general inflation 2% pa, median earnings growth 2% pa, house price inflation 2% pa CASH (aka P2P Investments) -------------------------- Headline yield 12% Yield after capital losses 7% before tax * Less the depreciating effect of inflation on cash 2% Net yield before tax 5% BTL (100% cash funded) ---------------------- Net Yield before tax 5% after expenses and voids (No depreciation/appreciation as I'm assuming house price inflation is level with general inflation) Or expressed more conventionally (before tax): P2P Investments: 7% pa return after capital losses Buy to let: 5% pa net rental yield plus 2% pa asset appreciation = 7% pa Also, remember that the excess demand for housing over supply only really applies to the south east corner of England as job creation is skewed massively in favour of that region. Any excess demand elsewhere in the UK should now gradually dissipate as EU migration is throttled, and the masking effect this has had on the decline in the long term population through deaths exceeding births is removed. * (modelling of p2p data, and historic senior/senior-stretch debt suggests 7% is the best that can be expected as a long run return)
|
|
hazellend
Member of DD Central
Posts: 2,361
Likes: 2,179
|
Post by hazellend on Nov 17, 2016 20:57:12 GMT
IMHO what you are saying makes no sense to compare two things you need them both to be apples not apples and oranges.
Any rental income is still subject to tax so your 6-7% becomes 4.8-5.6 % and any loss on P2P is tax deductible so using your numbers that is 7.2%.
Your also mention weakening GBP well assuming you are renting UK property then it will be just as much effected as P2P.
Finally you mention a doubling of property by 2030 whilst personally I think that's as likely as Crystal Palace winning the premiership, if it were to happen I think that P2P losses will be very small much less than 3%.
You make some very good points. Unfortunately I only have a very basic understanding of how the economy works. In my very simplistic view, I see that although 12% return is great, it means holding on to a slowly depreciating asset (cash) whereas long term, a property investment will always increase in value as the population and demand for housing grows. You should look at total return.
|
|
|
|
Post by bracknellboy on Nov 17, 2016 21:14:32 GMT
A doubling over the next 13 years (2017-30) implies an average annual increase of 5.5% ( 1.055 ^ 13 = 2.006 ) Most of what I've read concerning inflation in western economies concludes that excluding unknown unknowns (WW III e.g.) inflation is likely to remain in the 2 to 4% range for the next twenty plus years. Mortgage affordability vs current earnings is already approaching the limit of what is sustainable, so for house prices to double over the next 13 years implies earnings growing faster than inflation. This can only be achieved if productivity (a long term problem in the UK) improves significantly. However median wage growth is likely to remain subdued in the UK, as any productivity gains are more likely to result in preferential increases to the lowest earners to offset the (assumed) reduction in EU labour following brexit. If I had a £ for every time I'd called the top of the UK property market, I'd own Mayfair. If I'd been a property bull rather than a property bear, I'd be a much richer person than I am.
|
|
markr
Member of DD Central
Posts: 766
Likes: 426
|
Post by markr on Nov 17, 2016 21:29:27 GMT
Liquidity is another consideration, you can't sell a piece of a house if you need to free up a bit of capital. If you don't want to draw an income, compounding is easier with P2P too. Reinvesting interest payments really boosts returns over time, but it's a long time before rent payments are enough to buy another house.
|
|
jamesc
Member of DD Central
Posts: 447
Likes: 253
|
Post by jamesc on Nov 17, 2016 21:54:04 GMT
Liquidity is another consideration, you can't sell a piece of a house if you need to free up a bit of capital. If you don't want to draw an income, compounding is easier with P2P too. Reinvesting interest payments really boosts returns over time, but it's a long time before rent payments are enough to buy another house. Very good point plus there are significant transactions costs in property whereas the majority of P2P is transaction cost free
|
|
adrianc
Member of DD Central
Posts: 9,020
Likes: 4,829
|
Post by adrianc on Nov 18, 2016 8:15:41 GMT
Any excess demand elsewhere in the UK should now gradually dissipate as EU migration is throttled, and the masking effect this has had on the decline in the long term population through deaths exceeding births is removed. You might like to double-check your figures on that. Population is growing, and net migration is only around half of that growth. EU migration is only about half of net migration. 2015 - 513,000 population growth, 333,000 net migration, 180,000 EU net migration. Last time the population decreased in a year was 1982. I do agree that the SE is a unique case within the UK, though - a lot of the population migration to the SE is internal migration within the country. And if you're thinking about the SE in a BtL context, then it's worth remembering that property prices there are already so high that rental yields are laughably low (usually below the cost of finance, especially when the 3% SDLT is taken into account), so any BtL purchase is based almost entirely on hoping for future growth.
|
|
|
|
Post by mrclondon on Nov 18, 2016 10:26:43 GMT
adrianc I was basing my thoughts on the research that if I have remembered the conclusions correctly showed that it is only fairly recent migrants into the UK that are reproducing at greater than the population replacement level. Even the 2nd generation from immigrants trend much closer to UK cultural norms in all aspects including procreation.
|
|
|
|
Post by ruralres66 on Nov 18, 2016 13:37:23 GMT
Regarding diversification of investments, which is an approach my family have adopted since the 1990s, having got caught by a rogue Building Society "advisor" on PEPs, (yes, some of you may recall them!).
Personal Equity Plans, otherwise known as PEPs, were introduced as tax-efficient investment vehicles during the 1980s and 1990s....became ISA's .....(look where they are now)!
Expecting a financial crash at the time, which came incidentally, we signed up and were given papers for a "capital protected" PEP. The advisor by slight of hand processed a different one!
I have never trusted an advisor to do my investing since!
Around that time, we were also being encouraged with "credit debt"- we resisted.....
Extra in private pensions- we resisted and invested in a small property........
Modest shares were acquired "free"- Leeds BS - Halifax or inherited- poor overall and look where Lloyd's shares are now!
Lately, through unusual difficult family circumstances, the family retained and further invested in a parental family home, in the south east, which needed two years of work before rental. So no profit there!
- home in a modestly affluent coastal area, with no mortgage or debts, finally in very good refurbished order, rented out with very carefully picked tenants, fully agent managed- (due to distance from our home) with annual management cost of 10%, - rental for a person with no other income, so tax advantaged, only yields about 4- 4.5% all things considered. We have had no "downtime" of rental luckily.
A friend locally with a very bad tenant who lied, (supported by Shelter barrister - free to tenant) has lost 4 years of full rent and has lost thousands as the tenant rendered the house uninhabitable to get made homeless with Shelter's help!
Not only that, they charge increased council tax due to it being empty and he will have little rebate, though they classed it as "uninhabitable." It will costs thousands to put right which he does not have and no rent either.
Moral is, though house prices as capital have increased, the bother and strife that can ensue even for those experienced, is substantial. The law is more on the side of the tenant and it needs careful, close and time consuming monitoring.
Also, as said here, there is little flexibility should you wish to access some of this equity as Capital Gains Tax will kick in and must be factored into the equation.
RS, ( and P2P, or not to P2P, that is/ was the question!) though risky, is a doddle by comparison! IMHO!
|
|
