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  • Entrepreneurs

    Better off in the stock market?

    If you want to invest in stocks then putting it anywhere but indexes is a mistake imo. It's a reasonable accepted fact that fund managers on average struggle to outperform the index long term so all you are doing is paying them a nice fee for the privilege of matching an index
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    Dear Tribers
    Has anyone put substantial money in vanguard or other funds i.e. 50-100k, I have started to drip feed but wonder if I should invest all my spare cash or buy another BTL
    Regards

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    It all comes down to the BTL deal you get

    If it gives you a good yeild and some cracking growth it should be BTL If Not Stock market long term


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    BTL -  @ 75% LTV

    So if Vanguard returns 10% then.....

    Your BTL only has to return 2.5% to match that

    But I aim for 20% on each £1 invested in BTL

    So Vanguard would have to return 80% pa and that is unlikely me thinks

    BTL is better

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    Jonathan Clarke. http://www.buytoletmk.com


    i know what your saying here and i agree 20% return on the deposit works if you can find the right property

    at present i cant find the property that adds up at present

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Hi Jonathan,

    Is the 2.5% gain you mention capital growth? Are you forecasting this over a long period to ignore market fluctuations?

    If you target 20% for each £1 invested is this yield your now talking about or yield and growth? If the target is 20% for each £1 invested would this not be the same for vanguard (20% return on each pound invested?).

    The problem I have is with low yields around by me the only way it makes sense to leverage is to make the most of capital growth but this may take a while.

    Andrew
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    Hi Andrew

    It was a comparison example just to show the power of leverage as opposed to a specific example

    So 2.5% would be the ROI which would include yield and CG . Very easily achieved 

    20% was yield and CG . I used to say between 20% and 40% but times are harder now 

    Not sure what the returns are on Vanguard so 20% would be good if they achieve that  ?

    But you cannot leverage against them so 80% is the equivalent figure when compared to BTL 

    I am guessing 80% would not be a realistic return for Vanguard

    If you compare stocks with BTL over say the 25 year term of a mortgage the BTL starts to really come into its own  and completely outstrips stocks

    This again is because of lthe power of leverage and compound interest

    So within that 25 years releasing equity and buying more results in more leverage 

    Its quite possible to then get infinity returns on your £ investment 

    100K unit using  75% LTV and the 25% deposit from  released equity of another BTL

    Say that 100% loan split between 2 properties is @  3% rate 

    That 100K loan cost you £250 pa IO . Rent maybe say 600 pcm

    therefore the £350 profit is made with no money put in of your own - Hence infinity return

    Vanguard cannot possibly compete with that I suggest

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    Jonathan Clarke. http://www.buytoletmk.com


    Thanks Jonathan,

    I agree with all you say I just don’t see why if you’re comparing £1s invested and not overall return surely the 20-40% return in btl with leverage  is the equivalent return in vanguard as its already allowing for leverage and doesn’t need to Be x4 or am i missing something?

    On a side note what capital growth forecast do you apply on your portfolio long term (20 years)? I’m using 2% in line with inflation but not sure if it’s too pessimistic?


    One more question if you were purchasing now would you work on the interest rate your offered or would you work on 5% interest rates to make sure it’s a good buy? Eg with low rates even a low yield makes sense but shouldn’t you work  out your returns based on 5% rates for the long term? 

    Thanks

    Andrew 


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    I`m not quite sure I get what you mean - sorry

    I`m trying to compare £ with £ in the different investments but maybe over complicating it

    The BTL return is  20-40% ROI  for each £ in BTL spread across in this case 4 properties

    So you get in effect 4 £ for the price of 1 Vanguard £ due to the ability to leverage the BTL £

    So key is the 75% stake  from the lender as they are assisting you to get 4 x 20% - 40%

    The lender though strangely doesn't take 75% of the spoils of the incoming rent and CG

    The lender doesnt ask for any extra return except their loan rate @ say 3%

    I`ve never quite understand why not tbh as it would be easy to structure that in as a condition

    Why dont they want some more of the spoils

    They have missed a trick here I believe  but if they are happy not to benefit I`m not complaining

    No one will lend you 75K to buy 100K of Vanguard stock

    So TMW/ Aldermore / Halifax / BM  etc  haven`t as much confidence in Vanguard  as bricks n mortar

    That speaks volumes to me as to the difference between the two asset classes

    ...............................

    With CG I dont apply a static figure . 5% makes me smile but 2% I am happy with

    I dont religiously follow CG growth or factor it in but of course its on my mind every day

    I check the data produced by the various indices every month to see whats what

    I like to punch in anything from 1% - 5% pa on my calculator for reassurance

    Even if its a lowly 0.3% pcm say that`s still pretty acceptable as your portfolio grows

    2016 was 10% for me which was great . Those kind of years make you glad you leveraged up hard .

    In the flat or negative years you tend to punch in your yields for reassurance more than CG

    10% growth in 1 year say 15 years in to your BTL career can equal  5 - 10 years of Vanguards growth

    That`s the crucial element for me for leveraging. That makes the choice i made 20 years ago worthwhile

    As the years go by the difference between BTL returns and Vanguard returns can get quite stark

    .................................

    Historically I used 5% CG and tend to keep to that even though rates are historically low

    If I fixed @ 2.5% for 10 years now though I would def factor that in to my long term thinking

    If I only fixed for 2 years ( which I wouldnt ) then 5% is better I think as 2 yrs goes in a blink of an eye

    However I stress test to 7% rates to ensure a sudden rise wouldn`t collapse the business

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    Jonathan Clarke. http://www.buytoletmk.com


    HI Jonathan

    Thanks for your reply, I will try again to explain what I mean ( not splitting hairs just not sure if im missing something? (Hopefully I am ?)

    So you get in effect 4 £ for the price of 1 Vanguard £ due to the ability to leverage the BTL £

    I understand this And use the principle myself .

    So key is the 75% stake  from the lender as they are assisting you to get 4 x 20% - 40%

    Are you not making 20-40% already on all four property’s because of leverage and the x4? I don’t understand why you times it by 4 again to get 80%?

    Hopefully iive missed something here? 

    Thanks for the info regarding what rates and capital gains you use, I’m using the same principles.

    If you could only achieve 6% yield so after maintenance voids and running costs only 5% would you still use 75% ltv  at 6.6 stress test or would you use a lower loan to value?

    the problem in my mind I can’t get past is with a 5% yield if rates went to 5% there isn’t no profit with leverage unless you factor in capital growth! Also with a lower loan to value the roi drops to 5% (yield only) 

    I’m basically in a position to pay down all debt or buy more at the minute.

    Thanks as always 

    Andrew 

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