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  • Stickies & Evergreen

    9 irrefutable reasons why property is still a viable investment + Landlord Survival

    There's lots of doom and gloom around from landlords who are up in arms about the tax changes, some making knee-jerk decisions about their property future.

    First of all, the new tax changes have not been written into statute and many industry bodies are lobbying the Government to reconsider them.

    If the changes do go ahead, there is plenty of time for landlords to prepare and plan their way forwards.

    Existing landlords have different challenges to those just starting out, but ALL landlords have the opportunity to create wealth through property and no one should lose faith with property investment just yet, or make hasty decisions.

    Here are my 9 very compelling reasons why property is still a viable investment:

    1. Rents are predicted to continue to rise.

    High-end estate agent Knight Frank is forecasting that rents will rise by between 12.1 per cent and 17.1 per cent by 2019.

    London and the South East will be the strongest performers. Find out why and where by reading our thread:

    See - Is the North/South divide going to widen?

    2. Continued rise in urban renting population

    With money harder to borrow, larger deposits required, a lack of new affordable housing and the impact of the economic down turn, the U.K. has seen a strong growth in the importance of renting.

    While it is hard to see the UK reaching the levels of renting in European cities, it is true that the seemingly unstoppable post-war growth of owner occupation has slowed and even reversed in some areas.

    Data from the Office of National Statistics (ONS) shows that by 1971 50% of households were owner occupied. This rose to the all-time peak of 69% by 2001. Since then it’s been on a steady decline, and by 2011 had fallen to 64%. This is the first fall in the percentage of people owning a house in the last 100 years. Indeed the ONS shows that between 2001 and 2011 there was a 1.7 million rise in the number of households, of which 1.6 million
    of them were renting. Meantime the number of households owning their home in England and Wales rose by only 110,000.

    3. More babies being born than houses been built

    You don't need to be a maths genius to understand these figures.

    A combination of the birth rate reaching a 41-year high and the struggles faced by the construction industry have caused the ratio of births to new homes to reach its highest level since the end of World War II.

    Mortgage insurer Genworth said 6.1 children had been born in England for every property that had been built in the past four years, more than double the ratio of 2.9 seen in the 1950s and 2.4 in the 1970s.

    See - 6 babies have been born for every property built since 2010

    The Economist also reported only yesterday that the shortage of bricks and bricklayers could have a serious impact on the U.K. housing market.

    4. More new Buy-to-Let mortgage products and an increasingly competitive market place

    Lenders' confidence in the buy to let sector means that there are increasingly competitive mortgage products for landlords, and more new players entering the market place.

    The buy-to-let mortgage market accounts for 15% of outstanding mortgages and 18% of new mortgage lending.

    Ben Carey-Evans, Analyst at Timetric commented recently:

    "Improving economic conditions, however, particularly the continuation of improving real wages - due to extremely low inflation - should see gross lending rising at a steady rate up to 2019.

    "Growth in the mortgage market will be supported by rising house prices necessitating larger-value loans, and regional variations in house prices will continue to influence the distribution of mortgage lending."

    The Timetric Report revealed predicted lending to stand at £218bn this year before rising to £241.6bn in 2016 and sharply increasing by 11.7% £286.8bn in 2019.

    5. Property still the preferred choice for pensions

    More than two out of five (41%) of homeowners in the run-up to retirement are now banking on their property wealth as part of their planning as pension freedoms drive a change in attitudes, new data from leading equity release lender more 2 life reveals.

    The research among homeowners in the 55 to 64-year-old age group shows strong support for using property wealth in funding their retirement and it is also points to potentially stronger demand among younger age groups. More than half (51%) of younger homeowners in the 45-54-year-old age group regard their property wealth as part of their retirement planning.

    See - Investing pensions in BTL property with Kate Faulkner

    6. People are living longer.

    Thanks to improved diets, advances in medicine and better treatments for infectious diseases , one in three babies born now will live to 100.

    According to the Office for National Statistics (ONS), the total number of centenarians is predicted to rise from 14,000 in 2013 to 111,000 in 2037.

    This means that properties will not be passed on to children and/or return to the housing stock as quickly as in previous decades.

    7. Interest rate rises will remain well below previous "normal" levels.

    Bank of England Governor Mark Carney said last week that since the Bank's inception three centuries ago, short term interest rates have averaged around 4 1/2 per cent, but that "it would not seem unreasonable to me to expect that once normalisation begins, interest rate rises would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historical averages."

    With interest rates "normalising" at around 2%, landlords will be able to adjust and survive.

    See - Why you should tune into Mark Carney's thoughts

    8. Lack of coherent housing policy by successive Governments

    Successive Governments have failed to address the U.K.'s housing crisis and the current Conservative Government is not addressing the issue with any coherent policy.

    If anything, their recent landlord tax changes will cause some landlords to exit the sector, reducing the rental stock in the PRS and potentially increasing rents!

    There has not been a coherent social house building plan for years and this has created a huge back log of housing demand that could take decades to address and resolve.

    9. Buy to sell, property trading, and holiday lets are not affected by the tax changes.

    If one strategy proves to be too tax inefficient, then there are plenty of others to choose from!

    Buy to sell and property trading could be considered, as could U.K. holiday lets.

    See - Property strategies going head to head

    A conversation with a specialist tax advisor like our tax partner Rental Income Tax Advisors could open up new opportunities or give new direction to people who wish to invest in property using strategies other than buy to hold.

    See - Budget beating strategies for landlords!

    ___________________________________________________________________

    All this means that demand is going to outstrip supply for the forseeable future, and fuel property price increases as well as rental levels.

    See - U.K. house builder forecasts 15 year unprecedented property boom.

    Property Investor Survival Plan:

    1. Be as educated and informed as possible to help you make wise choices.

    2. Seek professional advice on how to structure your property portfolio in a tax efficient manner.

    3. Invest more time in planning and auditing your property business, measuring performance and tweaking to maximise performance.

    4. Take a long term view - 15 to 20 years.

    5. If possible, leverage at around 65% to minimise risk.

    6. Become an expert at finding property deals, always buying below market value and locking in equity from Day One of ownership.

    7. Maintain your assets to a high standard, attracting premium rents and tenants, and maintaining the asset value.

    8. If you currently invest in standard BTL, consider diversifying into other areas such as refurbs and holiday lets.

    9. Join a Landlord Association and adopt a business and professional approach.

    10. Keep calm and carry on knowing that having a roof over a person's head will NEVER go out of fashion!

    See - Shawbrook Bank on landlord tax changes and planning for the future

    One way to find property deals is to subscribe to Property Tribes RepoList, the U.K.'s largest real-time database of refurbishment, repossessed, and auction properties.

    What other compelling reasons will keep YOU in the property investment game and do you have any further additions to my "Property Investor Survival Plan"?
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    Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **5 reasons to get your FREE portfolio review NOW**
    Hello Vanessa,

    You've already covered a number of reasons why renting will continue to grow in the UK. It's also worth bearing in mind that the shift from ownership to renting is happening in most developed countries and not just here in the UK. New Zealand's press recently spawned the phrase 'Generation Rent', something we've been familiar with for many years.

    Before I put forward one or two suggestions for your list, I would also like to point out something that is completely overlooked by journalists who tell us it's a disaster that home ownership is falling and renting is increasing. A significant proportion of renters do not want to buy a property and they choose to rent, not because they can't get a mortgage or properties prices are so high, but because they feel it's a better and more flexible option to the commitment of taking on a mortgage. No repair bills, no concerns over property prices or interest rates, the ability to live in a City apartment this year and a cottage by the sea next year, flexibility to work anywhere and move on at almost a moment's notice. Renting has become a lifestyle choice for a significant proportion of our tenants. It suits their lifestyle and their investments are elsewhere.

    It's also clear that the Government will miss all of their new build targets. Even if they do hit their targets, which they won't, the number of projected new builds doesn't come anywhere near the requirements of a country with an increasing population. To give you an example of this, Eurostat predicts that the UK's population will continue to rise, from 65 million in 2015 to 67m in 2020. By 2050 it will have reached more than 77m. In 2080, Eurostat believes the UK will have a population of more than 85m.

    Based on these predictions, which have been the same for five years, UK population will increase by 2 million by 2020, or by 400,000 per year. This doesn't take into account smaller household sizes. The Government has set a target of 240,000 new homes per year by 2016. The closest the UK has got to this is 219,000 in 2006 /2007. Average household size is around 2.4 which means the Government target will only just about soak up new demand for housing being created by an expanding population.

    The irony of changing landlord's tax relief is that if BTL investors lose their appetite for investment properties, builders lose a significant proportion of their future buyers and they, in turn, will have less of an incentive to build properties and the problem is exacerbated. George Osborne can't seem to get to grips with this and I tried to explain the facts to an MP yesterday. He responded with the Tory 'party line' which means he doesn't understand the housing market either.

    PRS investment will be the real competitor to the typical BTL investor in the future. These schemes will have built-in annual rent rises, strict rules and regulations over their occupiers, and many of the schemes will be high density developments. If you've ever read the History of Council Housing in the UK (sorry, very dull but worth Googling) not everyone will want to live in high density housing once the development has matured. History has a habit of repeating itself.

    Private renting and private landlords are part of the solution of our providing housing in the UK. They're not about to be consigned to history.

    I've pulled these stats from open and credible sources. Happy to supply links if needed.

    My advice would be to choose your new acquisitions wisely. Tenants will require higher quality housing in good locations. As we've seen with supermarkets falling out of fashion recently, the British public wants choice, variety, something a little bit different and flexible, and value for money. Privately renting offers all of this, and more.
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    Cannot Fault What You say!


    Thank you for your invitation to respond.

    This is all about supply and demand and an increasing demand.

    The present Government is with us for 4 years 9 months and as the Labour Opposition appears to have developed a Lemming Instinct and pressed the Self Distruct button we will certainly have them for another term.

    I have been busy with an intended Kent Police and Crime Commissioner bid distracting me from the Housing Tzar job. Whilst the Landlords wish me to take the job David Cameron has yet to cross my hand with Silver!

    The Government cannot do without PSL providing increasing numbers of houses for the population.

    You are absolutely right that the Government needs to revisit the situation to encourage Residential Property Investment.

    PSL provide accommodation for those tenants who cannot afford to buy or choose not to buy!

    The Exit strategy for PSL needs to be a 10% tax as is Entrepreneurial Relief, and not standard rates of 18% or 28% and as with Farming if it is passed to a Family Member (or trust) then there is neither GCT nor is there Entrepreneurial Relief to be paid as long as the house is to remain rented out for say ten years!

    If you sell after 7 years you pay the remaining three years at 1% making 3% total.

    Seems fair to me but then I am biased!

    Be very clear the Government is trying to curb public spending and does not wish to fund Council Houses. It wishes the Private Sector to fund them! Seems wise to me!

    Fergus Wilson

    19th August 2015
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    Its raining outside as I type and not that warm
    In this climate one of the essentials of life is a roof over your head. Its up there just behind food and water as a survival necessity. Its not like a large avocado at a shocking £1.50 in Tescos which I`m partial to but can do without. Its not like a 30K new Gti Golf. I dont really need to drive at 150 mph. Its not like a £1000 50 inch TV which is nice but not really that essential in the bigger scheme of things.

    But if I open my back door and step outside the comfort bubble of my existence then within seconds it becomes distinctly chilly and i want to step back inside.

    So if we accept that concept that houses are one of lifes necessities then if you take the number of people in the country and divide it by the number of houses its a real squeeze. There are not enough to go round and we are always playing catch up

    In 2016 the ratio doesnt look any better it looks worse. 2020 doesnt bring any relief and we wont have cracked it by 2030 either . That therefore will drive up prices and rents. Humans are good at quick fixes but useless at looking a generation ahead. Property investors know this and they take ruthless advantage of this fact .

    Our island is relatively small and self contained and gets smaller each day as the coast is eroded and sea level rises. In 2100 some low lying areas will have to be vacated . England is a brilliant place to live as well. The rest of the world thinks that too. Dover does not have a problem with people trying to escape to France . Mars will not be open for business just yet either . Mans desire to constantly procreate will not cease.

    The government looks 5 years ahead not 50.

    For all these reasons i believe that property remains viable. It will be tinkered with yes along the way and tax and other legislators will do what they have to do.

    The government just want their cut like they do of anyone when they see they are getting too big for their boots. Its our turn at the moment to be slapped

    If property was not viable as an investment any more then the market would be flooded with sec 21`s and the council departments homeless teams would be in meltdown. It hasnt happened and it wont happen. My phone hasnt rung with investrors saying they want to sell. It rings saying I want to buy some more . If investing in property showed signs of a mass retreat then the government would have to take its foot of our throat and say - there there sorry Mr LL, I will go and bully someone else now

    Make money in property and pay your taxes.
    We need the government and they need us
    This Symbiotic relationship will continue.
    We will just have a few spats along the way
    .
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    Jonathan Clarke. http://www.buytoletmk.com

    Sorry treating mortgage interest as income will bankrupt many LL
    Only by being creative can I avoid bankruptcy!!!
    Any LL on a wage of about £30000 plus their numerous properties will be bankrupted!!
    They need to sell or reduce the mortgage loan debt substantially
    Not many can do that
    Very few LL who are presently basic rate tax payers WON'T be in 4 years time
    It just won't be worth it!!
    Those LL who can reduce their mortgage debt will be in a more sustainable situation
    The death of high leverage to sustain a property business has occurred and is a busted business model!!!
    There is NO way I would invest in property again if I was to consider it as a newbie unless I put down a very large deposit!!
    That means I would be unable to buy the number of properties I previously did!
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    (20-08-2015 05:29 AM)paul_barrett Wrote:  The death of high leverage to sustain a property business has occurred and is a busted business model!!!

    Paul Barrett is right.

    (20-08-2015 05:29 AM)jonathan_clarke Wrote:  If property was not viable as an investment any more then the market would be flooded with sec 21`s and the council departments homeless teams would be in meltdown. It hasnt happened and it wont happen.,,,

    I'm sorry Jonathan but I think this is naïve. It takes time to evict tenants and sell properties... We are absolutely instigating this process as needs be, I'm sure like many other big landlords. The only reason it's not too visible yet is because it is a long drawn out process.

    Mark Alexander is being forced by these tax changes to sell up and become a tax exile!

    Property investing may still be viable but on a much smaller or less leveraged scale.

    Angela
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    "It is the small decisions you and I make every day which shape our destinies." Anthony Robbins

    (20-08-2015 08:05 AM)Angela Bryant Wrote:  
    (20-08-2015 05:29 AM)jonathan_clarke Wrote:  If property was not viable as an investment any more then the market would be flooded with sec 21`s and the council departments homeless teams would be in meltdown. It hasnt happened and it wont happen.,,,

    I'm sorry Jonathan but I think this is naïve. It takes time to evict tenants and sell properties... We are absolutely instigating this process as needs be, I'm sure like many other big landlords. The only reason it's not too visible yet is because it is a long drawn out process.

    Mark Alexander is being forced by these tax changes to sell up and become a tax exile!

    Property investing may still be viable but on a much smaller or less leveraged scale.

    Hi Angela

    You are instigating this strategy maybe but is that more because of your run away success which isnt typical of the average LL The percentage of landlords who have 100 properties in their portfolio must be only about 1%. Thousands upon thousands of others with maybe only 5 will stick with property as a viable investment and not serve Sec 21`s. Its a great pension for them still

    The governments job is to go in hard and then wait for the focus groups to form and come back at them with their concerns . They then sit around a table and listen and then negotiate their position. If the back lash is so strong they relent as they realise they have overcooked a policy and their think tank got it wrong. They then look like the good guys who have listened. If the back lash is not that great though they plough on through as its what the majority are quite happy with . Some see it as only just. How much sympathy was there with the bankers bonuses.

    I agree the Sec 21 tally is not visible to us yet so that was conjecture on my part . I haven't sensed though that every LL`s is chucking in the towel. Far from it. I get calls all the time from budding investors wanting to expand their portfolios not sell them off

    The councils homeless departments will be gathering information like crazy behind the scenes. If they flag up a 500% increase in Sec 21`s from landlords across the board from those with 1 property right up to those with 100 then the government may relent and change their tune as the knock on effect of their proposed policy will have dire consequences for the whole country / economy.

    Other sectors which rely on LL`s doing what we do would be adversely affected and it might trigger a downturn in the whole economy and affect therefore their election chances next time round. It wont be just LL`s having a moan but every other person who is affected who will jump on their back as well . I dont think for one moment they will allow that to happen

    But if its just the likes of your good self and a relatively few other big portfolio holders who decide for tax reasons (plus maybe other ancillary reasons ) that its time to sell up and to move on to pastures new then their policy will have worked. The majority of LL`s will carry on as normal after having their reactionary pesky prod at Parliament

    The government still want people to invest in property - but maybe just 1 or 2 or 3 not 100. That`s being plain greedy :-)

    That makes BTL and investment in property per se very viable still in my view . It just might need a bit of restructuring on an individual basis for the big guns . The government doesn't mind you getting quite rich but they try to stop anyone and everyone getting very rich. If they see that LL`s are breeding uncontrollably and taking over the market place (which the last 10 years or so has certainly seen testament to ) they tax you accordingly but don't kill you off completely.

    Its just a bit of a financial cull

    We will unfortunately lose some but the species as a whole will still survive and thrive

    My tax bill may go up 5 fold by 2020 . It hurts yes and so my property needs to go up now 0.7% pa or so to cover that bigger bill rather than the current 0.1% Projections for property growth are about 5% over the next 5 years.

    I can live with that cushion.


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

    [b]THE ONLY GAME IN TOWN
    [/b]


    Residential Property is the only game in town!


    Fergus Wilson
    20th August 2015
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    Hi Angela,

    The changes have not been written into statute yet.

    There is still time to have our voice heard by signing the petition. Every landlord in the U.K. should do this. The apathy so far has been quite outstanding.

    SIGN THE PETITION NOW

    If the changes do go ahead, we have several years to plan for them.

    I would be interested if you could explain exactly what you are planning to do with regards to your portfolio.

    You hint that you are selling some.

    Will you put others will less capital gain into a limited company?

    Have you sought professional tax advice?

    Mark Alexander's claim to be leaving the U.K. was a bit premature if you ask me. The grass is no greener on the other side.
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    Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **5 reasons to get your FREE portfolio review NOW**
    (20-08-2015 08:12 AM)Vanessa Warwick Wrote:  I would be interested if you could explain exactly what you are planning to do with regards to your portfolio.You hint that you are selling some.

    Will you put others will less capital gain into a limited company?

    Have you sought professional tax advice?

    Hi Vanessa,

    I don't want to alarm others and you're right that each person's circumstances are different - it's absolutely vital that each person takes advice and considers their own position. I have spoken to our accountant and formed my own views after talking to him and considering many views and perspectives.

    We are planning to sell many of our properties - tenanted where possible - to end up with a small un-mortgaged portfolio.... I may be open to tweaking the plan to keep more with a smaller amount of gearing, which would be possible but there is an element of personal reasons here for wanting to reduce more.

    Paul is right again about the process being done quietly... we are working with an estate agent to hopefully sell some under the market radar:-)

    I will put a few with no capital gains into a limited company.

    Having played with the figures, it's true that certain circumstances could arise - if interest rates go up enough and house prices collapse - in which we could go bankrupt should we not make any changes to our portfolio; and that was our original impetus to sell. However, I admit there's an element of its appealing to us that has crept into our thinking.

    It's something we've always known would need doing eventually due to mortgages needing to be repaid at the end of their term, but somehow we envisaged putting off that day for as long as possible. However, we're paying an obscene amount of tax which is most galling to a government that is simultaneously trying to strangle our business; and of course we're not getting any younger, our kids are not interested, Dave would never hand over the management to anyone else; our experience of letting agents has been consistently poor...

    Over the past year or so, I've sold the odd (non-local) property here & there because they were particular 'dogs' in the portfolio - before all this budget changes - and have found a good feeling from lightening our load!

    If I were at a different stage of life or portfolio building, I may be fighting to find a way through this more fiercely, although I have not come across any solutions that I would be happy with or believe would work for us, from anyone else.

    Angela

    PS: I agree about the inertia and lack of signees to the Petition... I suspect there are many landlords who have reasons to keep their heads well and truly down.

    PPS: Sorry in advance but we're off to Cambridge for a couple of days now so I'll not have much time to reply again for now.
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    "It is the small decisions you and I make every day which shape our destinies." Anthony Robbins

    We'll I would suggest it was!!
    Providing you can keep your income and mortgage interest below £43000 then you are ok
    That means usually about 2 properties and an average wage earner
    Mind you I suppose two properties are enough to fund a pension if you can pay down the mortgage debt quickly
    Unencumbered property now seems the way to achieve pension income
    For many LL it will make sense to reduce their properties and reduce mortgage debt
    This just means less rental property and rents will increase and tenants will struggle to find rental accommodation
    The high leverage business model is dead
    We will be returning to only rich people being able to afford to be LL
    Those former aspirant LL will just leave their money in savings accounts
    Ultimately it is tenants who will suffer
    That will just be TOUGH
    Blame Osborne not LL!!
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