Simple Question

[PropEx]

Why is it that so many people are obsessed with buying to let in the UK? Surely, once the wear and tear allowance is scrapped and the new tax laws come in, a lot of landlords will be struggling to pay their mortgage. It is easy to say, just put the rent up, but I would say people can't afford to pay much more rent than they are already paying. Why don't people look at the US property markets in Orlando, Detroit, Pittsburgh and other such cities where there were a lot of repossessions. You can pick up a repossessed 2 bedroom condo for about $60k and get net yield of about 15%. Are British property investors possibly a bit blinkered in thinking that they should only buy in areas that are close to them so they can "keep an eye" on them? I just don't understand why people invest with their hearts and not their heads. Surely, the main things to look out for is, if you are getting value for the property, what the vacancy rates are and probably most important, what the yield is?

 

[Nicholas Wallwork]

Where do I start!

With all the changes you mention I think the less experienced and "non professional" landlords will be squeezed out. The more established, professional landlords will probably have more opportunity as properties will be less competitive to buy. The supply vs demand imbalance will still be there and will still drove prices up all be it maybe slower for a short period.

The U.K. Is a relatively small island and is in great demand not just from uk buyers but overseas as well and this helps fuel to property market especially in London.

I do larger scale developments, HMOs and multi let's etc and my yields are often over 15%.

The trouble with America in my opinion is there is SO much available cheap land to build on, capital values are likely to stay low and it's very hard to make larger gains. I appreciate the rental yield may be good (if what you say is correct) but if you buy in the right location in the Uk the yields are also pretty damn good AND you get good capital appreciation to boot. If you can ride it out for 15-20years+ then any downturn won't effect you either.

So: U.K. Small island, limited land, good yields in right product and area, good rental demand, good capital appreciation, inward investment not all local... Need I go on...

I hope that answers the question as to why people invest here?

 

[Nicholas Wallwork]

I should add that not having full control over your property portfolio IS a risk and one I wouldn't take building a large portfolio overseas. The odd property is fine if it's well managed etc but how do you build a larger portfolio when you're not there?? I'd say it's nigh on impossible...

 

[Judith Beilby]

I think the general thinking to buy within a manageable distance from your own home is sensible. Buying property and managing tenants is not always easy. Resolving issues with properties remotely is a difficult task and one which I would not be prepared to risk personally.

Local knowledge and expertise will allow professional investors to profit even though amendments may need to be made in changing market conditions.

 

[Luke Masters]

@PropEx A point which may be of interest to yourself, I am currently working with a client who is a Director at Savills and their forecast on rental prices over the next 5 years is a 16% increase and their forecast on capital appreciation is a 24% increase (Based on the South East of the UK) So although the tax increases have their implications a medium to long term investment should still prove very profitable in theory.

Hope you find that interesting!

 

[PropEx]

Where do I start!

With all the changes you mention I think the less experienced and "non professional" landlords will be squeezed out. The more established, professional landlords will probably have more opportunity as properties will be less competitive to buy. The supply vs demand imbalance will still be there and will still drove prices up all be it maybe slower for a short period.

The U.K. Is a relatively small island and is in great demand not just from uk buyers but overseas as well and this helps fuel to property market especially in London.

I do larger scale developments, HMOs and multi let's etc and my yields are often over 15%.

The trouble with America in my opinion is there is SO much available cheap land to build on, capital values are likely to stay low and it's very hard to make larger gains. I appreciate the rental yield may be good (if what you say is correct) but if you buy in the right location in the Uk the yields are also pretty damn good AND you get good capital appreciation to boot. If you can ride it out for 15-20years+ then any downturn won't effect you either.

So: U.K. Small island, limited land, good yields in right product and area, good rental demand, good capital appreciation, inward investment not all local... Need I go on...

I hope that answers the question as to why people invest here?

Interesting, but without being rude, no it doesn't really answer my question, considering there are better markets out there.

I hear the "UK is a small island" etc argument all the time which I still find strange. If you compare Japan (area-145,000sq miles, pop-126million and UK (area 93,000sq miles, pop-64million) we can put it into perspective. According to your argument the UK should just go up and up and never go down! Whereas Japan which has a similar area/population ratio house prices have fallen nearly 70% since 1990 in real terms. Japan, which has a far greater economy than the UK. The main reason the UK property has risen is because of Government stimulus, without that, it would be a different picture.

Sure there are cheap places to build in America, but they are in worthless areas that nobody would want to live in. I'm talking about major cities such as Orlando, where more people visited last year than London and Paris combined, which has more hotel rooms than New York, London and LA. My last client I sold to, I sold a condo for about $56k(with net yield of 17.8%),the very same condo sold for $162k in about 2006(pre-crash obviously). If prices in these areas keep on rising the way they are at the moment, then pre-crash prices are expected to be reached in 2019. So, not bad capital appreciation at all!

I have lots of clients that have 10, 20, 30 properties in the US, the client with the most has 53 properties. All of these people have absolutely no problem at all with their portfolios because I quite simply put them in touch with a good management company. It is there job to look after it for you and it is only about 8-10% of the rent. There must be thousands and thousands of property investors that invest in homes that arent in their native countries.

My only regret is not buying as many properties in Detroit a few years ago, where you could have picked up property for about $10k with about 40% yield!

Thoughts?

 

[PropEx]

@PropEx A point which may be of interest to yourself, I am currently working with a client who is a Director at Savills and their forecast on rental prices over the next 5 years is a 16% increase and their forecast on capital appreciation is a 24% increase (Based on the South East of the UK) So although the tax increases have their implications a medium to long term investment should still prove very profitable in theory.

Hope you find that interesting!

Tell me, what do they base their forecast based on? Also, tell me have they taken wage growth and inflation into account? I'll tell you what is interesting though, IMF, major trusts, major pension funds, UBS, Jim Rogers and I think Warren Buffett too have all warned about the UK property bubble.

 

[Luke Masters]

I would agree their is caution to be considered, I will find out for certain whether they have taken those two factors into account on their analysis.

On the above point the FTSE100 entered bear market territory yesterday and with the DOW falling 248 points - I think a question that must be considered with Japans inclusion, is are we blind to the fact their is a global economic slow down and is there a global recession on the horizon?

Real wages aren't going up anywhere near as much as real inflation globally - in short.

 

[PropEx]

I would agree their is caution to be considered, I will find out for certain whether they have taken those two factors into account on their analysis.

On the above point the FTSE100 entered bear market territory yesterday and with the DOW falling 248 points - I think a question that must be considered with Japans inclusion, is are we blind to the fact their is a global economic slow down and is there a global recession on the horizon?

Real wages aren't going up anywhere near as much as real inflation globally - in short.

I only really mentioned Japan because it has a similar sized area/population ratio as the UK. But yeah, yesterday was a very volatile day in the stock markets. With the global economic slow down the fed raising rates the other week there will be more money going into America, the days of overseas investors piling their money into London property are over, or at least over compared to 5, 10 years ago

 

[PropEx]

I am just stating the facts, you can get great discounts on repossessed property in the US with far better yields than the UK and because the properties are repossessed you are getting ridiculous discounts so the capital appreciation is generally better than UK also.