Effect of Pension Release on the BTL Market

Reply to the comment left by "Michael Barnes" at "21/03/2015 - 11:42":

Sure Michael - here goes .....

This video demonstates one way the masters of their craft execute it....
http://www.conspiracyoftherich.com/RobertsNotes/VideoBlog/CreatingInfiniteReturnsThroughaRealEstateInvestmen.aspx

Or more simply in my case. Two examples...

1) Buy say a 100K house using 75% LTV BTL mortgage and 25% deposit from equity release from your own residential home borrowing both at say 5% . That costs you £416pm interest only
Rent for £650.
You have put in none of your own money but still make £216 pcm

Investment by you £0
Return £216
Return on investment ( ROI ) = infinity

2) Or Buy a 100K unit for 90K cash Spend 5K on it refurbing adding 15K in value . Remortgage for 85% at its new increased value of 115K @ 85% = £97,750 = £407 pcm pulling out all your 95K investment. Rent for £650
You have put in none of your own money but you in fact gained £2,750 (which will be swallowed up in fees ). Your profit pcm is £243

Investment by you £0
Return £243
Return on investment ( ROI ) = infinity

My wife`s a mathematician as well as you so we talk the same language Look at Judith and Fergus Wilson who famously bought about 1000 units. They both were maths teaches. They excelled with the formula. It really helps to be at home with % calculations, ROI`s etc . , Ive got two chartered accountants in the family as well which all help confirm that the business plan works. My dad was a banker so was comfortable around large figures.

But for me its the real beauty of compound interest over time on a leveraged portfolio which outstrips any ISA annuity or Sipps etc . You just have to get it right on one unit and you have a successful business. Then replicate it as many times as you can. A 5% lift in house prices is then proportionally magnified out of all recognition to your original investment.

The figures do not lie but the key thing is to stress test it, keep a healthy reserve so you cannot get caught out by the inevitable variables like interest rate rises, house price dips, maintenance nightmares which will always occur. That`s the managing the business side of it. Fail to do that and I agree you can catch a cold. Once that is sorted though and you stick within the parameters which suit your individual risk profile then the skill is just then acquiring good value properties at the outset then bish bash bosh and you are away

To infinity and Beyond!
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Reply to the comment left by "Mark Alexander" at "21/03/2015 - 11:44":

Hi Guys

"Infinite Returns"?

I'm still struggling with this. Even though you're pulling the initial cash out by way of borrowing you're still liable to the mortgage company for the debt and if interest rates go against us then you're in the brown sticky stuff. I agree that a cash contingency would buffer such a scenario but how long would the cash reserve last and have you factored into your yields the variable of holding cash back?

Reply to the comment left by "Mark Bennett" at "21/03/2015 - 19:05":

Interest rates yes will naturally go against you at some point. So it is a case of not if but when. You factor that in . Stress test your portfolio to say 7% loan rate so you do not go under,. I made heavy use of 5 year fixes in the early days to mitigate the interest rise risk. I could always sell but I cash stash enough in the reserve fund to live for 10 years @ cash flow neutral and for 5 years @ at cash flow negative if loan rates went to say 12% . That gives me plenty of time to re jig things.

You can be getting infinite returns but still potentially go under. There are two different arguments there . They are not mutually exclusive. You have to get your cash flow right. Do multiple scenarios on what may happen in the future and take a considered view depending on your risk profile. You always need an exit strategy to deal with any potentially hostile conditions. You want to be an investor not a gambler. Stack the odds in your favour but still be bold and aim for an infinite return on your investment
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Reply to the comment left by "Jonathan Clarke" at "23/03/2015 - 00:11":

Jonathan,

I believe you are simplifying things too much by saying that the returns are infinite.
You need to have the money in the first place to be able to do these things, and you have to find a property that is worth 100k that you can buy for 90K and then do 5K of work and value it at 115K, all of these are ideals, that is the type of property that we all would love to buy and there are precious few on the market. Again you have not factored in the fees of either which makes the line far tighter in both. Then put the taxes that you pay on both and the lines become even tighter on the profit, especially if you are working a normal job in the mean time.

I agree that in principal the returns are good and that you are not "investing" and money but the first option requires you to effectively sell 25% of your own house.
The second you need to be able to have the 90K cash to begin with even thou you are pulling the capital out at the end of the process, the same count be said for shares. if the price rises remove the amount of shares to equal the value you invested - voila free shares and a dividend.

Reply to the comment left by "James dengel" at "30/03/2015 - 15:22":

The maths is simple. Its the application and mechanics of how each investor works the maths which requires yes hard graft, I wouldn`t pretend otherwise. But its all possible that`s the reality . Property offers that. Shares don`t. Which is why its worth doing all the groundwork I feel to get yourself into that potential position with property

You may not get infinity returns every time ( I certainly didnt ) but surely if you get 1000% or 500% or 100% return on every £1 you invest its worth doing. I am quite happy with 20% - 40% , Anything extra is a bonus. But infinity is possible.

I take your point about releasing equity on your own house can be seen in effect as selling part of it . But I see it more as redirecting funds locked in one house into another house I own which will likewise benefit in capital growth. Its reinvested in bricks and mortar more than sold off. So its not that relevant I feel as to where the cash actually sits as long as it sits in a property .

I`ve remortaged 3 times. That money is responsible for and sitting in maybe 15 other properties directly AND indirectly. My own house has quadrupled in value since I bought it in 1993. But its given birth to its children THEN grandchildren so to speak. The net effect is that the equity within has multiplied probably in value not 4 times maybe but 12 times. Compound is a marvelous phenomena. Paying off your mortgage should be a criminal offence.

As for shares yes if you cream off the top layer of gains and reinvest that portion in some more shares and make a gain then that is too infinity returns

But infinite returns are relatively meaningless if you only make a few pounds.

Leverage is why property beats shares every time
Try borrowing 75k to buy 100K worth of shares!
Banks would do that surely if they believed in shares
But they dont. They believe in property though.
We dance together

Heres another 75K Mr Clarke we believe in you

100K buys 100K of shares or 500K of property @ 80% LTV
Shares go up 5% you have made £5000
Property goes up 5% you have made £25,000

No contest me thinks
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Reply to the comment left by "Jonathan Clarke" at "30/03/2015 - 20:18":

And how many of the people thinking of taking money out of pensions will be using leverage? How many of them will even qualify for BTL mortgages?

Reply to the comment left by "Ian Ringrose" at "30/03/2015 - 23:51":

Leverage will appeal to those who think like me I guess. One of my clients was 62 when he started investing. Loved it. He bought 18 properties through me. He had no trouble obtaining BTL mortgages. TMW lend until you are 90 years of age . Apply up until you are 70. Its not a problem
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http://www.themortgageworks.co.uk/lendingcriteria/btl-criteria

Thankfully there are few real blockers to creating a healthy leveraged high yielding cash flow property portfolio in your latter years. as long as your mindset is open to how it can be achieved.

There are many switched on highly successful 55 year olds who have built up sizeable pension pots who relish the opportunity to get into property rather than lodge it in an annuity. They are quite capable of adapting their skill set and it gives them a focus in retirement to actively pursue building a sustainable income with capital growth in a familiar asset class.
.

Reply to the comment left by "Jonathan Clarke" at "18/03/2015 - 18:03":

Ollective guilt responsibility for regulated advisers? It is, it's caled the FOS. David Aron made shed loads by direct selling SCAPRs (Structured Capital at Risk Products), I never liked them, never sold them but the PI went up, comoliance costs went up and sobdid the FSA and FOS levies to pay for all that compensation. You probably won't know this but today not only is a real Independent Financial Adviser (not all "IFAs" are IFAs if you see what I mean) well qualified, it is the ONLY business or professional activity with no long stop for complaints. Advisers have been pursued both to and beyond thegrave. it is no sinecure.

Its Freedom Day today! No need now to buy an agonisingly archaic annuity, Buy a pulsating perfect property instead. You know you want to.

This stuff scares me as too many people go into "stuff" as they follow fashion rather than making investments for the right reasons. One thing all of us who have been landlords for some time know is that it is no sinecure; you need to be informed and you need to work at it.

Pension Freedom will lead to a number of people entering the BTL world who are essentially clueless. They will be a danger to themselves and their tenants; supply and demand suggests that the price of suitable BTLs will go up as well. Pension freedom will also bring in the informed, engaged and professional, who will also be hunting for new BTLs!

This website does a great deal to educate the clueless, but not everyone is suited to being a landlord.