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"My friend rented out his old flat in Ealing, and it's gone up 120k in three years.
I hear it all the time. Everybody wants to buy a BTL property because their friend has done well.
Should you get a BTL?
Stop and think carefully. Just because your friend has done well it doesn't mean you will. There are reasons why this might not be a good time to buy. The inevitable interest rate rises are looking likely to be this year. This could change everything. Relative returns could take a beating.
Landlords have seen an increasing portion of their investment returns coming from capital growth and not rents. Particularly in London, where the majority of a landlord's return's have come from the boom in property prices.
This boom cannot last. Property prices are already bubbling over, with Rightmove's June figures indicating a fall or flattening off. The interest rate rise will be the pin, that may not pop it, but will surely give it a slow puncture.
So without capital growth to rely on, let's look to rents. Again, thanks to our failure to build, alongside unprecedented rates of immigration, rent affordability is already stretched. I can't see how we are going to get anything more than inflation levels of rent increases unless wage inflation suddenly picks up.
Meanwhile, rising interest rates will revitalise other saving investments. Bank rates will go back up and look increasingly attractive.
So back to the question, 'should I get myself a BTL property like my friends?'. Well give them another ring. Ask them if they've had any problems with tenants or with managing their rental property. Have they ever had a blocked toilet or a tenant not paying the rent?
I bumped into a friend the other day when I was walking the dog. He has a couple of BTL properties. It turns out that one of his tenants has stopped paying the rent. Apparently she lost her job, the LHA calculation came short of the required rent, and for some reason she stopped paying the rent altogether.
My friends has received no rent for three months. He served her a free Section 21 Notice downloaded from our site and is now waiting for the court to award him possession. Meanwhile he has been having to pay the BTL mortgage payments from his savings.
I hear it all the time. Everybody wants to buy a BTL property because their friend has done well.
Should you get a BTL?
Stop and think carefully. Just because your friend has done well it doesn't mean you will. There are reasons why this might not be a good time to buy. The inevitable interest rate rises are looking likely to be this year. This could change everything. Relative returns could take a beating.
Landlords have seen an increasing portion of their investment returns coming from capital growth and not rents. Particularly in London, where the majority of a landlord's return's have come from the boom in property prices.
This boom cannot last. Property prices are already bubbling over, with Rightmove's June figures indicating a fall or flattening off. The interest rate rise will be the pin, that may not pop it, but will surely give it a slow puncture.
So without capital growth to rely on, let's look to rents. Again, thanks to our failure to build, alongside unprecedented rates of immigration, rent affordability is already stretched. I can't see how we are going to get anything more than inflation levels of rent increases unless wage inflation suddenly picks up.
Meanwhile, rising interest rates will revitalise other saving investments. Bank rates will go back up and look increasingly attractive.
So back to the question, 'should I get myself a BTL property like my friends?'. Well give them another ring. Ask them if they've had any problems with tenants or with managing their rental property. Have they ever had a blocked toilet or a tenant not paying the rent?
I bumped into a friend the other day when I was walking the dog. He has a couple of BTL properties. It turns out that one of his tenants has stopped paying the rent. Apparently she lost her job, the LHA calculation came short of the required rent, and for some reason she stopped paying the rent altogether.
My friends has received no rent for three months. He served her a free Section 21 Notice downloaded from our site and is now waiting for the court to award him possession. Meanwhile he has been having to pay the BTL mortgage payments from his savings.
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