The joy of being a landlord

[radderfire]

The fact is that property is wildly over priced right now. Property prices have been massively pumped up to levels that are unaffordable by many working people. Property should not be an investment, it is just somewhere to live. The whole thing goes back to establishing human hierarchies and fighting over the land. Power is achieved through control of the land, and in modern societies through control of finance, and they are closely linked. I would say that the UK is far from a democratic country and has high inequality. How much does your vote actually achieve? Not very much really, as the main parties are as bad as each other, and there's also the House of Lords. Behind the scenes there are entrenched power structures that control the land and finance. Sure it sounds like I'm a bit crazy and some people here like to call me a conspiracy theorist, but I am far from it. Honestly I don't like to argue with people because it's a waste of my time, but the facts of the matter are ...

In 2008 there was a big financial crisis, referred to as the "Great Financial Crisis" at which time, if the UK was actually operating under proper capitalist principles (and we are very far from that) a lot of the banks would have gone bust, i.e. be allowed to fail, because they had made so many bad loans. They were all bailed out, and this allowed over-priced property to continue. It's the same today, many big banks in the international financial system are technically bankrupt, witness the failure of SVB and Credit Suisse, there will be more on the way in the coming months. The bailing out of banks allows property prices to remain artificially high, and this causes problems for tenants in terms of affordability, and for landlords in terms of making a return on investment. It becomes hard to make a ROI on your investment, when fundamentally your product is very overpriced for your customer. The property market is stalling and it is about to correct, so the situation will get worse, probably around July/August because that's when these things seem to happen.

Bank bailouts happen because this is the powerful looking after their own interests. Normal rules of business do not apply to banks, because it is the powerful controlling them. They aren't subject to going bankrupt when they should. This is why economic principles cannot be applied to the banking and property sectors, because the market is being manipulated. A big factor in this is money printing from thin air by the central banks and added into the system. It is not subject to audit, and not "accounted for" as such, and this is why we see big rises in the price of everything, there is huge inflation in the system, to help keep the banks in business. Things like "Help to Buy" don't help people buy houses, they help the banks control the price of houses, and keep them artificially high. Buy To Let landlords are no more than property maintainers for the banks. The UK economy has a massive banking sector, and the UK has lost a lot of its other industries, because they have been outsourced to China. The Germans would say we are making money from "cutting each others hair", i.e. we now have a finance and service economy. Being a landlord is part of this, it does not increase the wealth of the country, it just increases inequality in the country. At the end of the day being a landlord is a "wealth extraction" industry, because you are just charging someone else to exist, there are no two ways about it. Personally, even if I could afford to be a landlord, I wouldn't from a moral perspective, because I prefer not to charge people just to live, I'd rather make money in other ways. If I am being honest, I don't really feel sorry for any landlord that finds it hard to reach profitability, because property prices have been pumped ridiculously high and it's beyond a joke, it's people's lives we're talking about.

It might sound harsh but I for one would welcome a big property market correction because the average house price to average salary ratio is ridiculously high and I just don't think it's right. If the market was left to proper capitalist market dynamics and not being manipulated then property wouldn't get so overinflated. However, after the 2008 bailouts and the less obvious ones since, I don't hold my breath, because it's not proper economics being allowed to operate here, so you can expect the powerful to do everything they can to keep propping up the banks and property sector, at the expense of normal working people. As that Robert F. Kennedy Junior video I posted said, it is "Cushy socialism for the rich, and brutal merciless capitalism for the poor." The modern banking system, based on FIAT currency, and free from any accountability for currency issuance, as there is no longer a gold standard or any other effective mechanism to control currency issuance, has resulted in an unrestrained financial sector, with little accountability to the general population, and results in the huge rises in inequality we are seeing today.

 

[Freakbro]

To be fair I didn't say no profit, I said the profit is no where near as much as it appears and sometimes slips into a loss. Take a typical 200k property the rent pays nothing towards the 200k in a commonly used interest only setup that is favoured by landlords. So after 25 years at 3k tax per year the Landlord will have had to pay out £75,000k tax on the rent. Plus lets say over that time £25,000 on refurbishments, £15,00k on repairs, £5k on checks, insurance and when it comes to sell the landlord will have to pay £200k to the bank for the property plus what ever other bills I forgot. So we are on £320k the landlord will have paid out after 25years on that 200k property. This is not even counting capital gains tax, and all the costs in selling the property.

I know you are just trying to pull some figures together to illustrate a point, but you are getting very confused between Income/Expense, Profit and Cash Flow and have only accounted for the expenditure side, not the income side.

The mistake some people appear to be making is they come across as thinking the rent pays off the 200k and when the landlord sells they get 200k profit from the sale into there bank which is wrong in this situation at least as the 200k doesn't go to the landlord in this typical setup.

The two main points are the rent is often not used by the landlord to pay the value of the property which is what the anti landlord posters are complaining about. The profits at the point of sale is not 200k into the landlords bank account. I am not saying no profit, I am saying at the point of sale its far less then you would expect in many cases.

That doesn't actually matter if the Landord has got a Interest only or Repayment BTL mortgage on their "profits" as that's just a cash flow issue. If it's interest only, then no, the renter isn't paying off the mortgage he's paying off the interest and the Landlord pockets more cash (flow) immediately. If it's a repayment mortgage then the renter is paying off the mortgage and interest and the Landlord gets less cash (flow) now but it's only deferred as more equity in the property that he gets later.

EG. from the figures you have stated above.

You already defined how much profit the Landlord is making by saying he's paid £3k tax per year, so keeping it easy at 20%, that's £15,000 profit he makes. That's after all those other expenses you mentioned have been paid out of the gross income, the £25k + £15k + £5k + etxras, lets call it £50k over the 25 yrs at £2k a year. So his gross income from renting is now £17k / year (we'll be generous and include the 20% tax credit for interest relief in the £50k)

So now his gross income from that property over 25 years is £425,000, his net income after expenses is £375,000 and post tax income (the cash he gets) is £300,000. Out of that he has the cash movements of paying either the interest only or the repayment mortgage monthly amount.

So lets look at the property, £200k say 25% deposit of £50k and either an interest only mortgage or repayment one.

The payment on interest only @4.75% on £150,000 is ~£600 / month = £7,200 / year (You pay a lot more interest this way as the capital doesn't decrease)

The payment on Repayment @ £4.75 on £150,000 is ~£850 / month = £10,200 / year

Lets say the house appreciates 100% over the 25 years, so we're at the end of the 25 years and its now worth £400,000 and is sold.

The interest only route gained the landlord in cash £300k - (£7.2k x 25) = £120k he sells the house for £400k and takes the £200k appreciation, total cash gain £320k

The repayment route gained the landlord in cash £300k - (£10.2k x 25) = £45k, but he now sells the house and takes the whole £400k, total cash gain £445k.

The CGT is the same for both, as it's only paid on the appreciation.

To be fair, the disparity between the two methods wouldn't be as pronounced as this shows, as the numbers being used are very simplistic. ie: the tax wouldn't remain the same for both as there less tax deduction overall with a repayment (as you pay less interest overall). Also, the reason why landlords previously went the interest only route was because they could deduct all interest as an expense, which would have meant they paid a lot less tax, now it's only a 20% tax credit, it's not as lucrative, especially when your overall income is in the higher tax band.

And also because most speculator type landlords want the cash now, with the interest only mortgage rather than wait 25 years to take it out of the equity.

(I'm sure I've probably missed something in all that, but that's the gist )

 

[Quartz]

at least the money you’re spending is an investment in an appreciating asset,

Properties do not always appreciate.

 

[NVP]

The majority definitely do.

 

[OspreyO]

....

It might sound harsh but I for one would welcome a big property market correction because the average house price to average salary ratio is ridiculously high and I just don't think it's right. If the market was left to proper capitalist market dynamics and not being manipulated then property wouldn't get so overinflated. ...

A mistake is thinking a big property market correction will give those priced out of the market a competitive chance. It won't because richer people will still outbid them. Also in a crash people incomes will also fall.

 

[dowie]

The fact is that property is wildly over priced right now. Property prices have been massively pumped up to levels that are unaffordable by many working people. [...]

It might sound harsh but I for one would welcome a big property market correction because the average house price to average salary ratio is ridiculously high and I just don't think it's right.[...]

You still don't get it, property prices were able to rise to (relatively) high levels because of low-interest rates etc.. as you've sort of recognised in your waffling but... the prices falling (which can happen as a result of higher rate) does not mean that property is then necessarily more affordable.

It doesn't matter whether homes are priced in BTC or whether rates rise and people can't afford to borrow as much if you'd don't actually have more homes.

If person A could afford to bid 410k for a 400k house and beat person B who could only offer the asking price then he's probably still going to beat person B in an environment where mortgages are less affordable and the asking price is 350k.

Unless there are actually more homes available for people that competition is still there.

 

[FoxEye]

A mistake is thinking a big property market correction will give those priced out of the market a competitive chance. It won't because richer people will still outbid them. Also in a crash people incomes will also fall.

Well wealth inequality is growing in this country, and we plainly don't have any appetite to stop that.

Since having a roof over your head should be a basic human right (I know it isn't, currently) we're really going to have to stop relying on "market forces" to fix the housing crisis. Esp down here you can see where that leads. Entire villages bought up as 2nd homes and holiday lets (no lie). Of course "market forces" actually includes govt interference that's actively making things worse, not better (like Right to Buy/Help to Buy).

I strongly believe the only solution is provision of low-rent social housing by the state/local councils. And that the state/councils become a major - perhaps THE major - provider of housing for many people.

Everything else just ends up with a huge number of people being locked in a miserable existence where they live hand-to-mouth, really through very little fault of their own. And the taxpayer paying an ever-increasing, eye-watering figure in housing benefit to private landlords.

It looks very likely that a change in government would be needed for this to materialise - but it would be to be a govt/coalition far more radical than what Starmer is offering (more of the same).

 

[Quartz]

Holiday homes being repossessed for first time in years, landlords warned

Crushing repayments are squeezing buy-to-let investors, letting company says

www.telegraph.co.uk

And from here:

Buy-to-let investors should perhaps avoid buying properties in Scotland after a series of anti-landlord polices were put in place by Nicola Sturgeon's government.

A cap on rents is having an impact on landlords' returns, and a ban on evictions is making it harder for landlords to reclaim possession of their properties compared with England. Taxes are also higher in Scotland.

 

[OspreyO]

Well wealth inequality is growing in this country, and we plainly don't have any appetite to stop that.

Since having a roof over your head should be a basic human right (I know it isn't, currently) we're really going to have to stop relying on "market forces" to fix the housing crisis. Esp down here you can see where that leads. Entire villages bought up as 2nd homes and holiday lets (no lie). Of course "market forces" actually includes govt interference that's actively making things worse, not better (like Right to Buy/Help to Buy).

I strongly believe the only solution is provision of low-rent social housing by the state/local councils. And that the state/councils become a major - perhaps THE major - provider of housing for many people.

Everything else just ends up with a huge number of people being locked in a miserable existence where they live hand-to-mouth, really through very little fault of their own. And the taxpayer paying an ever-increasing, eye-watering figure in housing benefit to private landlords.

It looks very likely that a change in government would be needed for this to materialise - but it would be to be a govt/coalition far more radical than what Starmer is offering (more of the same).

The issue has nothing to do with Landlords. Its the shortage of housing. Landlords don't build housing, so its nothing to do with them.

The UK Govt is not achieving its own low targets on new housing. That's the problem.

 

[FoxEye]

The issue has nothing to do with Landlords. Its the shortage of housing. Landlords don't build housing, so its nothing to do with them.

The UK Govt is not achieving its own low targets on new housing. That's the problem.

That's too simplistic.

It's comparable to eBay resellers. Resellers target things that are already scared/hard to get. They don't (necessarily) alter the scarcity, because they're not the producers, but they do increase the price to the end user.

Many private landlords are attracted into the market because the market is already broken. But their effect is not a positive one, like resellers.

The market being broken means landlords have greater security, because demand is off the charts and they can be as good/bad/ugly as they like, whilst business is still guaranteed. And quite a lot of landlords are prepared to hike prices to the greatest extent possible, whilst dealing with their tenants as ruthlessly as you like.

Because they can. Because the market is broken.

And even if we build lots of housing, we're in such a state now that the people likely to buy them are wannabe/existing landlords and people wanting 2nd homes.

 

[Mesai]

Properties do not always appreciate.

Maybe if you're buying in a field in the middle of nowhere. Most areas are going up, and if you're a landlord then you've probably had it for a bit and it's appreciated by a meaningful amount.

 

[radderfire]

You still don't get it, property prices were able to rise to (relatively) high levels because of low-interest rates etc.. as you've sort of recognised in your waffling but... the prices falling (which can happen as a result of higher rate) does not mean that property is then necessarily more affordable.

...

Unless there are actually more homes available for people that competition is still there.

The basis of my arguments is that banks have been taking too much advantage of normal working people, because it is in the interests of the powerful in the country to keep them going. Ultimately, banks are just a wealth extraction mechanism from poorer people to the powerful. The UK government has long since been captured by the banks and financial sector, and I'm not sure the UK has the potential for a groundswell movement to oppose the unfairness of it all, the French are much better at this.

The whole reason interest rates have been so low is that they are artificial. It's not based on proper loan making principles, where the provider of the loan takes on risk, and has to only lend to those that can actually afford the loan. It is the artificial injection of capital after the 2008 bailouts that never corrected the system, meaning interest rates could be pushed artificially low, and allowing house price inflation to continue. At some point, it has to grind to a halt, because many working people simply do not have the capacity to generate the income to pay a mortgage loan, and we are getting near that point now. My whole view is the property market should be left to proper capitalist market dynamics, and not artificially interfered with, then I would be more OK with it, and we wouldn't have these damaging boom and bust cycles, plus working people would not have to put up with inflated house prices and see most of their money going on somewhere to live, which just fuels inequality.

I understand what you are saying about more supply needed, and I am in favour of that too, as clearly this would help to solve the problem. I am in favour of social housing in general. I prefer seeing people at least have somewhere to live, and I don't like to see people having to suffer housing problems. However, my view is that the reason there is not more housing is that it is necessary to restrict new housing, and this is ensured by the powerful, because otherwise additional supply would bring down property prices, and this in turn would cause existential problems for the banking sector, which is bigger than it should be according to natural market dynamics. As I have said, the UK has long been fought over, and there is a power structure in place, which is in control of the land. This is why there should be an adequate provision of social housing, as it's only fair to give less privileged people somewhere to live if they need it. The reason we have the system we have today and why house prices are so expensive, is because it is carefully controlled by the powers that be. I would be OK with that if it was adhering to proper market dynamics and capitalist principles, but all the bank bailouts and special treatment of the financial sector indicate that it's not, so it's very far from a level playing field. When you start bailing out banks there becomes a disconnect between what property costs and what most people can actually generate through work, and that's because it's an artificial economy and essentially that's what I'm objecting to.

 

[radderfire]

Well wealth inequality is growing in this country, and we plainly don't have any appetite to stop that.

Since having a roof over your head should be a basic human right (I know it isn't, currently) we're really going to have to stop relying on "market forces" to fix the housing crisis. Esp down here you can see where that leads. Entire villages bought up as 2nd homes and holiday lets (no lie). Of course "market forces" actually includes govt interference that's actively making things worse, not better (like Right to Buy/Help to Buy).

Absolutely agree that local people should not be getting priced out of the market, it is a disgrace. I guess the only way to attempt to counteract it would be more campaigning to the local council for local byelaws on property usage.

 

[FoxEye]

Absolutely agree that local people should not be getting priced out of the market, it is a disgrace. I guess the only way to attempt to counteract it would be more campaigning to the local council for local byelaws on property usage.

It's started to happen, but very, very slowly. Some specific town councils have voted to "ban" 2nd homes, as much as they are able (it's not completely effective by any means).

Also extra council tax for 2nd homes is something they are trying to bring in, but Tory HQ has stalled giving them the powers to do that for another year.

 

[OspreyO]

Simple but yet.

That's too simplistic.

It's comparable to eBay resellers. Resellers target things that are already scared/hard to get. They don't (necessarily) alter the scarcity, because they're not the producers, but they do increase the price to the end user.

Many private landlords are attracted into the market because the market is already broken. But their effect is not a positive one, like resellers.

The market being broken means landlords have greater security, because demand is off the charts and they can be as good/bad/ugly as they like, whilst business is still guaranteed. And quite a lot of landlords are prepared to hike prices to the greatest extent possible, whilst dealing with their tenants as ruthlessly as you like.

Because they can. Because the market is broken.

And even if we build lots of housing, we're in such a state now that the people likely to buy them are wannabe/existing landlords and people wanting 2nd homes.

You're agreeing with me.

They don't ... alter the scarcity, because they're not the producers

You don't have to rent. You can buy directly off the producer, if youfeel its cheaper. The LL has no effect on that buyer owner market. Or the supply of housing. None.

45% of landlords, own just one property,
38% own between two and four properties,
17% of landlords have five or more properties and have half of private rented sector tenancies.

Landlords are not being attracted into the market, as you suggest. They are leaving it. They are being replaced by Landlords or Companies with lots of properties. Which is neither here or there. But a Landlord with one property is going to choose security over profit. Whereas they are being replaced by companies, who not need the security, any losses or risks are dispersed over lots of property due to economy of scale. So they can focus on profit. None are going to focus on social housing.

Landlord's are irrelevant to the supply of housing. They do not create supply. But they can't rent what they can't buy. Same as anyone else.

 

[OspreyO]

It's started to happen, but very, very slowly. Some specific town councils have voted to "ban" 2nd homes, as much as they are able (it's not completely effective by any means).

Also extra council tax for 2nd homes is something they are trying to bring in, but Tory HQ has stalled giving them the powers to do that for another year.

Why not spend that effort in building more housing. Instead of shuffling the chairs around.

 

[FoxEye]

Why not spend that effort in building more housing. Instead of shuffling the chairs around.

The housing has to end up owned by the state/council.

It could be built or bought. But either way the crucial thing is it has to be owned by the state. Rents can then be subsidised by the state - crucially without a 3rd party (private landlords) creaming off the top.

So we still end up subsidising rents (as we do today) but rents get paid back to the state, and subsidies come from the state/taxation, and costs can be lower than today.

Additionally we have to address the state of house building, too. We are building some absolute crud, again because the housing market is broken and literally everything will sell, no matter how awful.

 

[OspreyO]

The housing has to end up owned by the state/council.

It could be built or bought. But either way the crucial thing is it has to be owned by the state. Rents can then be subsidised by the state - crucially without a 3rd party (private landlords) creaming off the top.

So we still end up subsidising rents (as we do today) but rents get paid back to the state, and subsidies come from the state/taxation, and costs can be lower than today.

Additionally we have to address the state of house building, too. We are building some absolute crud, again because the housing market is broken and literally everything will sell, no matter how awful.

If you own a premium property say a 4m pound house why should the state own that?

The state should own its own social housing.

The Private Landlord are not creaming off the top, rather the state is paying to off load its obligation, risk and costs to the private market.

 

[FoxEye]

You don't have to rent. You can buy directly off the producer, if youfeel its cheaper. The LL has no effect on that buyer owner market. Or the supply of housing. None.

The analogy with resellers isn't perfect, so let me correct it.

Resellers buy a product and then sell it on again, outright. In that way they cannot be said to affect availability of the product. But they do push prices up.

If resellers bought a product and then, instead of selling it, rented it out, then it's not so black and white anymore. The availability of the product to *buy outright* is then indeed reduced by the reseller. The reseller *also* has the more general affect of increasing prices, whether bought outright or rented.

Still the reseller has no affect on the production of the thing in question, but they can affect both availability and pricing.

To say landlords have no affect on availability of houses to be bought outright would appear to be evidently false, since by their very function they take houses from the pool of houses available to be bought and instead add that house to the pool of housing available to be rented. This *must* have a pricing effect on the houses that remain, which are lessened in number.

There are multiple groups affected by the profileration of landlords in the UK housing market. They are not all affected in the same way.

The people who were never going to buy are affected by increased rents.

The people who were borderline able to buy are affected by being unable to buy/being in competition with landlords to buy.

 

[adidan]

Well not long now until my place will be on the market. Glad to get out of it, far more trouble than it's worth.

Good luck to whoever buys it although I imagine it will get rented out, for far more than I was charging.