The ULtimate Investment Portfolio

ToneControl

I've been expecting the London bubble to burst for 18 months, nothing to do with Brexit - it's a bubble
However,  there is usually a straw to break the donkey's back

spark240

Well...Ive been into property rental for the last 12 years and can only comment on personal experience, its got better as time has gone on, there seems to be no upside or downside to the portfolio value unless you want to borrow more, which I don't.

The key point is the exit strategy, which I admit isn't something i thought about at the start, but it has become more important now, so thats what we are planning next.

some folks opted to have a very highly geared portfolio, and this can be trouble, but generally if your sensible you can ride the waves.

Thats how I see it, and I reckon we have about a 30% "crash" buffer, and if the market drops that much I think were all in the sh*t !

spark240

sorry...just noticed this thread has become propertyfied....I also like buying nice guitars !

mellowsun

Can't see a property crash happening without an interest rate rise.

Mind, with sterling tanking that may happen sooner rather than later.

Evilmags

Old malt whisky is getting scarce and expensive. 

ToneControl

mellowsun said:

Can't see a property crash happening without an interest rate rise.

Mind, with sterling tanking that may happen sooner rather than later.

Interest rate increases (which can reduce demand and also force distressed sales) are not the only possible trigger.  There is also drop in demand  (which includes  sales driven by BTLs becoming nonviable investments,  or job losses/salary cuts) 

in a normal town, supply/demand would be driven by  a combination of owner occupiers and BTL buyers expecting  rental returns
In London,  AFAIK a lot of BTLs are bought to achieve capital growth, and rental profits are near or below zero. With the tax changes starting in April 2017,  essentially half the mortgage interest payment will no longer be tax-deductible for  anyone on over £40k (i.e. all BTL landlords)

So in London, the ingredients I can see are:

1. huge undersupply of housing, massive rents - typically at least 3 times normal UK big city rents and purchase prices 
2. similar salaries to the rest of the UK, not  any real capacity to keep the bubble expanding from  cash from wage slaves alreayd house-sharing
3. many EU citizens in residence - could reduce. I doubt it
4. lots of foreign money buying property - could panic and take flight, or just stop buying
5. Large financial sector - if it were damaged, could affect demand
6. concentration of  immigrants - in time  they may want to seek better of quality of life and disperse, I doubt this will affect much
7. low interest rates
8. pound weak - may encourage bubble in short term as Russians  (etc)  invest
9. new  stress test rules for BTL Lending

so,  everyone seems to agree there is a London housing bubble (there are lots of stories covering this), but has it reached its peak?   If so, will  prices remain static for a few years, or drop?
http://www.investopedia.com/articles/07/housing_bubble.asp

In Dublin, lending reached stupid multiples of 10x - the bubble in Dublin was insane
UK Rules came in  2014  limiting  almost all lending to 4.5x  -   "Mortgage lenders will not be able to lend more than 15pc of their total new residential mortgages at loan-to-income ratios of 4.5 times or above." This is a constraint on bubble growth

Whether prices crash depends on whether there are enough distressed sales with lower sale prices to also  trigger capitulation in  those  who just want to move.  BTL lenders going bankrupt  could cause distressed sales, and in large enough numbers, they could pop the bubble. I'd guess a lot of BTL landlords with a few properties are over-leveraged for the new  tax regime

So my guess is that in London,  the new mortgage interest  rate rules will affect BTL landlords holding mortgages personally, and  could pop the bubble.  BTLs held in limited companies can claim all the tax rebate, but the mortgage interest rate is  higher, and  there is no guarantee that landlords could  easily move their properties into Ltd companies.

Fretwired

I think crash is a bit strong - I think property is overvalued and we'll be in for a correction. The government are planning to build millions of new houses - which will have some impact and if the Brexit negotiations sour and the UK economy tanks then millions of EU workers could decide they're no longer welcome and go home leaving landlords with empty properties, especially if thousands of bankers relocate to Frankfurt.

TimmyO

Gassage said:

where the instruments are hired out to generate revenue, 

For me it'd need to be an investment or a day to day operation generating income  - not both given how susceptible an old guitar is to having value wiped off it every time it is used. And it would be hard or expensive to get insurance based on a possible future higher value. 

spark240

@ToneControl , some of your points may be valid for the London sector, but elsewhere I would question it, e.g. in the Midlands were we invest, the property values have stood still for the last few years, but...1) we are a Ltd Company, and 2) we took the wise move of taking out variable mortgages, so the income now comes from the rental for the foreseeable future. 

ToneControl

spark240 said:

@ToneControl , some of your points may be valid for the London sector, but elsewhere I would question it, e.g. in the Midlands were we invest, the property values have stood still for the last few years, but...1) we are a Ltd Company, and 2) we took the wise move of taking out variable mortgages, so the income now comes from the rental for the foreseeable future. 

I completely agree, I was specifically talking about London - the salaries paid there aren't an adequate foundation for the property prices  unless people accept a huge level of discomfort - house sharing to the age of 40 etc.  But the new BTL tax rules could make a big difference

BTL in the rest of the country is typically a different business model, I look for 10%+ gross yields,  mortgages typically less than 25% of rental currently, although  I do suffer with voids in this type of housing

TheBlueWolf

I love the idea but it may be unworkable in practice.