Sounds like a scam

Isn’t it just far easier to buy a property company or REIT.

They might have volatility in the price because it is quoted every day. When you buy a physical property yourself you only remember the purchase price and nobody tells you its daily market price. Therefore you don’t see or feel the volatility but it is still there really. Just try selling your BTL property in the middle of a recession. To my mind it is all a bit of a mirage to believe BTL is necessarily better or more stable etc.

Then there are all the tax disadvantages, e.g. CGT, and try putting a house into an ISA, and of course all the hassle.

I also think a professional landlord is going to run a better ship than you would do as an individual.

I have always really wondered about the returns from direct BTL, I would have thought it was quite hard to beat market returns after discounting tax and hassle ?

Compare with TRY...

Price 10 years ago about 180p, Price now 380p - capital gain 111% (tax free in ISA)
Income estimate at 3%*10*250= 75p or 41%
Total gain over 10 years = 152%

So we invest 150k, 10k of our own capital and 140k borrowed at 5% interest...
Gain = 225k ish
Costs = 140k*5%*10 = 70k

So that is 155k on a 10k outlay over 10 years.

It looks like a BTL actually requires a minimum 25% deposit these days with an interest rate of 4.5% and of course you need sufficient uncommitted income from other sources. Is there also a 3% stamp duty surcharge nowadays ?

Applying leverage to any investment will always exaggerate the gains, but as we know it doesn’t come for free - the downside is the risk. People like to pretend there is no risk with UK property - but of course that is never true - imagine what happens if interest rates rose to 5% ?

An excessive case perhaps, but illustrates there is risk in leverage...
http://www2.accommodationforstu...ndlord_guides.asp?id=189

Yes but you are taking a couple of things for granted -

a) You need to borrow £140k- what do you use as collateral - With a BTL you do not need uncommitted income as per se, you need to show that the rental will cover 110-125% of the mortgage payment (some use the lending rate some use the 4.5% follow on rate). In fact the Nov 2020 (see below) - was done for a family member who had the grand total of £14,360 income and £12,000 was from a BTL. I am also aware that some institutions will take investment portfolios into account as collateral but not income. But with BTL you have access to the finance which is cheap at the moment.

b) Your point about the power of leveraging is quite rightly valid. However following on from point a. If one was to leverage further from the £140 equity which had risen; then bough another property, then not only will their income and capital likely to appreciate (along with the borrowing) but they momentum can be maintained. However your link is a classic example of what can go wrong as well and it is that people need to understand the numbers from and view them on a bottom up perspective. Profit is wishful thinking, Cashflow is reality !

c) If one fixed a rate for 10 years then risk is reduced - and can gain a degree of surety on the outgoings. At the moment the max lenders are offering mainstream is 5 years, though push can be made for 7 years. As for rates I just completed the following 1.9% 5 yr fixed (Nov 2020) 7 yr fixed @ 2.49% (May 2020). 5 Yr Fixed @ 1.75% (July 2020)

I am not saying BTL is better that investments or vice versa. I am merely trying to highlight that there is a place for both in the world of investing. The difference is that in one world, the idea of borrowing to invest is a big no no, whereas in the other it is the very lending which is pushed to invest. However monies are not lent to the people who need it, rather it is pushed to those who can use it to either enhance their position or doom it.

What I am aware of is that the HNW of UHNW have a voracious appetite for real estate and BTL's. For them it is a perpetuating wealth creation mechanism, probably due the fact that it provides them with relative easy access to capital. It is those very wealthy who in 2008 after the FS crash began to maximise their borrowing (before the banks took away their facilities) and did the same again last year (before the banks pulled the lending). In fact I have a neighbor retiring by end of this year, and has been advised to take out as much as he can as post his retirement he will no longer have the basic £250k income. Thus take out the monies now while he can and offset his mortgage fully and still have circa £300k to help his kids get on the property ladder.

One often needs to be made aware that lending and access to capital is as much of a driver for the property price increases as the much as the low interest rates. Then you have the issue of types of properties, I have always been of the view that flats, apartments leaseholds do not generally create wealth (despite the example I provided earlier but it was bought from a family friend and the intention is to return it to their offspring in the future), it needs to be a freehold. There is also the issue with location and types of tenants, a 2 up 2 down rented to cash rich tenants, cleaners, builders etc is asking for trouble. Renting to a couple NHS doctors, bankers, and other professionals in an area with good school and commuter links somewhat limits that risk.

Yet many go by yields and and fixer uppers - without realising that those very aspects are why the properties have been put on the market, with the prices they have and attract those types of tenants.

Sure, but there is no getting away from leverage = risk.

Unfortunately situations can change quickly and catch people out with over leveraged positions in illiquid assets.

Lending criteria may be lax at present - but they can change very rapidly. Inflation could bring rising rates. Too many buyers are IMO over leveraged on an assumption that housing is a never ending cash machine. Everything depends on low interest rates and free lending. When lenders foreclose assets are sold at well below even depressed market values. The house of cards collapses.

In particular I don’t think high leverage in retirement is a good idea, there is no opportunity to recover.

All things in moderation. iMO, yes there are plenty that have made themselves rich beyond their dreams by building personal BTL empires. Equally I think most just do not understand the risk they carry, and their greed just begets more greed.

There is a reason property companies typically leverage 20-40%. Individual BTL millionaire’s just don’t understand that reason when they leverage up 400%. When the tide goes out we find out who is swimming naked.