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I’d like to start a conversation about macro-economics and the effects that it might have on property investing. In particular, I’m going to challenge the notion that house prices always go up and highlight that the price rises which have been enjoyed by property investors for the past generation have been largely due to the steady decline in interest rates. Ultimately I’d like to find clarity on the question of whether property investment is still a good idea today and if so then is the same formula that worked previously still the best approach. I’ve tried to research this topic thoroughly but please do disagree with me and offer alternative ideas. What I say relates mostly to buy-to-let (BTL) investments that involve a mortgage. A) Let’s start with some fundamentals: property investors generate profit from two sources: rental income and capital growth. With rental yields where they are today (around 4-6% gross) it typically works out that the rental income is similar to the running cost of the property, and so the investor relies on capital growth to actually make profit. If you knew house prices were going to stay still for the next 30 years, would you still be interesting in BTL? B ) Having established that capital growth is important, let’s examine what causes it. For people to pay more for houses they have to be able to afford to pay more and this generally means one of two things: either they are earning more (wage growth) or they can access cheaper mortgages (interest rates falling). Rob & Rob have often talked about affordability on their podcast and explain how it’s this combination of wage and interest rate that determines what people can pay, not just how much they earn. Interest rates have been falling reasonably steadily now for several decades, meaning that year on year buyers have been able to afford bigger mortgages, pushing up house prices. This is demonstrated by the fact that, over this time, the house price-to-income ratio has increased substantially but the mortgage payment-to-income ratio has been relatively unchanged. A research paper by Victoria Monro of the Bank of England [1] estimated that over the past three decades about half of the housing price growth was due to wage growth and the rest due to falling interest rates. Therefore, if interest rates had not fallen, we would have seen half the price growth over the past three decades. C) So what happens next? Assuming interest rates will not go negative, two things can happen: either rates stay low or rates go up, and surely they will eventually go up. This means that investors will be relying on wage growth alone to push property prices higher and when rates do rise this will have an opposing effect as buyers are faced with higher mortgage payments. If rates slowly rise over the three decades back to the point they were 30 years ago, might we expect the roughly equal contributions of interest rate changes and wage growth to cancel out and house prices stay flat. D) Does this present risk to property investors? I’d really like to hear some opinions from you all. In my eyes there are some significant risks: If I were to purchase a BTL today and house prices stay flat, I might make a small or zero profit on the rental income. But this scenario is likely to occur as a result of interest rate rises, in which case my costs are going to go up and I could find myself in a scenario where I’m making a loss each year on running the property and there are no price rises to bail me out. If rates rise especially fast then house prices could even go down, but I’d be surprised if central banks would allow this to a significant extent. Any thoughts? E) Is there a particular strategy that could be safer? Please do make some suggestions. I for one have been wondering whether the era of capital growth is coming to and end and instead investors should be seeking to maximise rental income rather than capital growth. This would sustain a larger proportion of returns when the growth stops and give a stronger cushion as interest rates rise and increase the mortgage payments. Conclusion I’m proposing that rising interest rates over the coming years are likely to counter the effects of inflation and leave house prices standing still. This means that property investors no longer be able to rely on capital growth as part of their strategy. Furthermore, investors face a risk that their portfolios will no longer be viable with higher mortgage payments. Contrary to popular recommendation, higher income (lower capital growth potential) investments might be a safer bet for the next generation of investors. Ultimately, the central banks have control of the interest rate lever, will their decisions be likely to help or hinder investors? But what about the 18 Year Property Cycle?!? Aren’t we entering the boom phase?? Well I’ll be honest, I’m not sure I believe in the 18 year property cycle... it’s often easy to pick out a pattern when you go looking for one, that doesn’t mean it means anything. Perhaps the 18 year cycle has some validity resulting from human psychology and it certainly seems like people are expecting house prices to go up right now. But I believe there are larger forces at play – these people need to be able to afford it at the end of the day. We might see some more growth still, I’m not predicting a crash; new 95% mortgages could push the market a bit higher still as could wage growth. But otherwise the economic levers that inflate house prices don’t go any further, and eventually will start going back the other way. This won’t necessarily result in prices going down, if central banks decide to avoid that. But it could mean prices staying flat and costs going up, potentially rendering traditional BTL strategies unviable. Please feel free to agree, disagree and generally offer your thoughts on these fundamental issues. [1] Read abstract and see Table 3 from https://www.economic-policy.org/wp-content/uploads/2020/10/9100_UK-House-Prices-and-Decline-in-Risk-Free-Real-Interest.pdf

Greetings All, In the midst of planning my desired strategy I have come up with a curiosity - how do most property developers/landlords structure the financing for their own home? If you have enough capital, I suppose the optimal scenario is to buy a place in cash, but as most of us have limited capital, it is better to keep it 'working'.. I also don't want to be throwing money away on rent, so is the answer an interest only residential mortgage? Any tips, thoughts and opinions welcome. Thanks! Karl

Please can someone help! I am in the process of buying my first property through my new ltd company. My guess is it will complete in 6 weeks or so. It is a 3 bed property that will be a single let. The property is perfectly habitable now and could easily be rented out as it is, however I want to do a fairly big refurb. E.g. replacing the kitchen and bathroom, new carpets, redecorate etc. This will mostly be a like-for-like refurb and I don't think the majority of it will count as a capital expense. If I do this work before I first put tenants in, am I right in understanding that I cannot claim this work as an expense as it involves getting the property ready to be let. However if I put tenants in first, then when they leave I decide to do the refurb, I now could claim this as an expense as the "rental business" would have already started. Have I got that right? My big question is... *What is the minimum period of time I would have to have a tenant in my property before I could class any replacement refurb work as a revenue expense?* If I rent the property out on a 1 week AST, then do a big refurb, clearly this will turn some heads with HMRC. So what is the magic number? 1 month? 6 months? I hope I can get some wise responses on this. Many thanks!

Just trying to get my head around tax... You own a limited company, which in turn owns a rental property which makes £5000 profit each year. Within one financial year you reinvest all the profit on a new rental property owned by the company. In this example, is there any corporation tax to be paid? Or does the fact that you've reinvested the money mean that your business has no longer made an overall profit and therefore you don't have a corporation tax bill? Thanks :-)

Good evening everybody. I would be greatfull if somebody could give me some ideas of the best way/place to get a short term loan/finance for around 4-5k. I am in the process of flipping a 3 bed terrace property in an attempt to gain more capital with the view of buying another BTL and another flip off the profit. Any advice is welcome and would be appreciated. Regards, Jase

I currently have one residential mortgage but I would like to purchase another property to renovate and sell for a quick profit. Last year I decided to do some travelling and I am currently working a ski season in Europe. I rented out my house before I went travelling so the repayments are taking care of themselves (and I plan on leaving it that way). I will be returning to the UK in April and would like to invest in another property, but to buy and sell rather than rent out. I am a general builder by trade so (other than gas and electric) I can do most of the work myself. I have around £10,000 cash to spend on a deposit for purchasing the property and then plan to lend/credit card for materials to renovate ( I possibly have a partner willing to also invest £10,000 but nothing confirmed yet) so will be looking to purchase in a cheap area such as Wales or Northern England and maybe a flat, but preferably a small house. So I was wondering what mortgages are available for purchasing a property to renovate, How much deposit % you need and if I can purchase at auction with a mortgage? Thank you so much for any advice! Guy

Hi all What gross yield, net yield and monthly cashflow do people aim for or achieve with HMO properties? If you have a real world example then a little detail along with the figures would be great! I just want to get a feel for what is deemed acceptable for this type of investment prior to setting my goals. Thanks in advance Paul

Taking into account the new tax regulation for individuals many people are forming limited companies and buying properties under the limited company. What is the best efficient options? Can the limited company allow us save more money on the long run? Please share your views and experience. Regards,

Hi there, I'm a student currently in university who has become interested in property and the whole business behind property. being new to this industry there is much that I don't understand, so first, I was wondering if people would be willing to answer the questions I list without scoffing at my naivety. 1) when looking at buying a property to let do many investors take account of the time to pay off any loans through the profit from the rent rather than just the amount of rent they will receive? 2) If you wanted to get comprehensive data regarding a property you were interested in would you have to go through an expensive advisor or estate agent who will provide you with figures you could probably work out yourself if you had the time? thanks for any help

Hi Folks, So for those of you who are keeping up with me, you'll know I'm searching all ways of building up my capital to start my own portfolio, so here's my next potential scheme, that I'd like your advice on please! So me and my partner are looking at getting our first home in the next 8 months, looking to get settled and secure before investing. The original plan was to find a nice house that's ready to live in, however! Now I'm learning more and more about property, my thoughts are as follows; could we, buy a BMV home, refurbish it, settle in for a year maybe two then address any further refurbishments that might need doing, then sell on for a profit. I don't know how long we'd have to wait for the property to raise in equity? The general thought is that, If we can make a decent profit out of something we are doing already, this will get us to our starting capital goal faster! Pleas let me know your thoughts and if there's any potentials gains I've missed. Looking forward to the replies! Thanks, Brian.

Hello All, A brief introduction: I am Barney, 22 years old and I work in IT as a Network Engineer. From the age of 18 my mum guided me through property flipping. I helped her flip around 6 properties until i gained enough knowledge and profit to go alone. I'm currently 3 properties down the line and really enjoying myself. I have a 10 year plan to get out of the rat race and wake up doing what I want (To run my own company and manage my portfolio). I am very grateful to have stumbled across this website after reading the book. I'm always open to learning as much as possible about property and i'm sure I will from these forums. I look forward to discussing my future investments with you all and hope to help you with yours. To those wondering why I have only been flipping properties. I have been doing it to build up enough cash to start so that I can start a limited company and begin my BTL portfolio. I have a goal for a monthly income and form my calculations it would mean managing 6 BTL flat/HMO's. I am aiming to get to this stage in the next 2 years max. I'm aware of the new BTL tax law and have read up about a few ways to workaround it. If anyone has any suggestions/constructive criticism; i'm all ears. Regards, Barney Brown