to have upset a friend over her investment decision

[pixienott]

I've a always had a real problem with borrow to let. I've a problem with buying properties to rent outright too in a time when housing is so badly mis-allocated, but I think if it's your own funds, then you make your choice.

But borrowing money to do it is much worse because (in my opinion)

#1 It's a leveraged investment which is regarded as a highly risky and sophisticated strategy only to be used by people who fully understand the risks (i.e. not an unshakeable belief in 'property always goes up'). Most people wouldn't dream of doing with other asset types.

#2 It's just totally questionable in a world of near infinite investment vehicles to pick one so intrinsically tied to people's lives, and to do it by borrowing money and bidding against potential owner occupiers doesn't seem right.

#3 (this one might have been a bit too much - see below) the money is credit money created by a bank - i.e. conjured out of thin air on a promise it will be returned by the fruits of some poor person who may never be able to own their own.

#4 I don't even think it's a good investment financially - most people are relying on capital appreciation, the yields where we would be are very low and the rents are dictated by salaries/housing benefit (aka landlord benefit!).

So a friend of mine is (planning on) doing the former. We'd gone out for a chat and we were discussing pensions. She says her and her DH are going to release some equity and look at putting it down on an investment property. I explained the above, and said that she could look at a self invested pension instead - which wouldn't necessarily have such ethical points but she was adamant that this was the way she wanted to go, and wasn't happy with me questioning it.

I feel bad, but it is how I feel. Was I wrong to bring it up? I just feel so strongly about this.

It sounds like you were very unreasonable and probably bordering on rude.

I don't see anything wrong with people doing buy to let. As long as the property doesn't sit empty, then someone is housed from it, and someone else is making their own money and is then less reliant on the state. Sounds like a plan that works to me.

there are a multitude of other ways to invest 200k

Please give us some clues

'someone else is making their own money and is then less reliant on the state. Sounds like a plan that works to me.'

But they are reliant on the state in a lot of cases. Housing benefit sets a floor on rents - it's quite high round here and that is state money that goes to private landlords. If wages actually reflected the cost of living that would be one thing - but tax credits and housing benefit are more of a corporate/landowner subsidy than to some person that is actually doing the work!

In my friends case it's really bad imho. She's releasing money that has been made out of house price inflation, and then using that and borrowing more to her own benefit, reducing supply that could have been used for an owner occupier and possibly taking state funds as her income.

With 200K....

A diversified portfolio of shares, commodities, commercial property, art, start up ventures, fixed interest instruments, cash holdings in current accounts giving 3% interest (which a couple can easily use 100k on). I could go on. In a SIPP you get income tax relief too at source.

There's so many ways, but we have a country that only seems to see property as the way. Or even invest it in your own creativity - your own business.

Just don't farm people with it in a country that has such terrible issues with housing.

but pixie/coffee- the financial risks vs benefits aside, can't you see that the issue is not principally the buy-to-let landlords? The council would not buy up all these properties, just as they have chosen (for various reasons, often related to financial constraints) not to build lots of new properties to address the short fall. BTL's are pushing up prices in some areas, it's true, but banning BTL would not suddenly get everyone who wants a home, a secure tenancy or a mortgage with which to buy homes.

For me the real issue is that the regulatory system for renting isn't great and there is lack of enforcement of the regulations that are in place against landlords behaving badly- but that doesn't make all buy-to-let landlords immoral. Some do behave terribly, and should be dealt with. I am not a LL, BTW.

Coffee- your friend has a bad credit rating, which is preventing her buying (? also limiting her renting choices, I know some letting agencies used to do credit checks on potential renters). The lack of council housing is due to many years mismanagement in terms of selling of stock and not replacing it/increasing housing to stock to keep up with demand. I don't see how you can place her situation at the foot of buy-to-let landlords. As to your other friend- I'd be pissed off too if my property were damaged by the tenants (I have been a tenant and would not have left the property in a state because that is unreasonable). And if I were entitled to recompense for the damage, I would be annoyed at having to chase after this. That your friend was comfortable enough to not absolutely require these funds to live off does not mean she should not have received it. What she did with the money she received in compensation is largely irrelevant.

I forgot another obvious one - Land. Woodland, agricultural land, paddock land. Why is residential property the only thing most people see?

'So you're complaining about the lack of rentable property and also complaining about people wanting to buy property to rent out?'

Where did I do that? There is no lack of rentable property imho.

Well i had never considered the points you made OP (apart from the fact i think residential letting should be a govt run thing and not open to joe bloggs with a bank chasing him for repayments to be in charge of whether i have a home next month or not) so i am grateful for the opportunity to think about them. Whether you are BU or not i dont know, i welcome healthy debate and prefer honesty in friends, especially if im risking a lot of money. But some people dont. I think its personal really.

It's unlikely that she'll take state funds as her income, most BTL mortgage providers don't like their clients properties being let to tenants on HB.

Thanks poster SurlyCue - that's all that I really wanted - her to think about it. I'm glad you and your friends have that kind of relationship where you can discuss things like this healthily :-)

And yes - residential lettings would have been much better state provided for those in genuine need. So sad that ship continues to sail away.

You might have done better to focus on point 4. BTL is far from the automatic money spinner many people seem to think it is, and withdrawing equity from your own home is potentially risking the roof over your head if it goes tits up. Sure, there are people who do very nicely out of being landlords, but I doubt most of them are people who need equity withdrawal to afford it. They're normally professional landlords, not amateurs with one overextended property. If she's working to lean margins, which it sounds like, she's going to be fucked if she has a void for a couple of months, let alone a tenant who forces her to evict them through the courts.

Ptolemy despite that, it's still very common for BTL tenants to be funded at least partially by HB.

Well PtolemysNeedle, perhaps once every landlord's mortgage has been cleared by the toils of others, they can be free of such an onerous restriction, and get their rental income subsidised by the state instead. Because that's just fine isn't it.

You're absolutely right LadyCatherine - the figures are probably the most important thing to talk about. It just doesn't stack up round here. The risk of capital depreciation for one thing (prices are set at the margin after all, and if there's a sniff of economic trouble or taxation as the demographics shift) and using borrowed money to do it seems so, so risky.

Where do you live OP?

Why would she have a discussion with you about it or argue back? Her investment is nothing to do with you and she obviously isn't interested in what you think. Sounds like your sticking your nose in tbh.

Fwiw most of those other investments have ethical issues tied to them too... But I guess you only see your POV.

I explained the above, and said that she could look at a self invested pension instead

Can I please come out for lunch with you next time?

Seriously sounds like a thrill a minute.

cash holdings in current accounts giving 3% interest (which a couple can easily use 100k on)
Fat chance!
Santander will do you that, for a fee (£24pa, which brings your 3% down a little bit), but only up to £20k not £100k, and you have to use it like a current account. You can get higher rates on smaller amounts: these are plainly loss leaders for the banks concerned.

As for using art as an investment vehicle...

I'm with you, though, that it's shocking that so much of the social housing stock has gone. And more about to go. Nice one, Dave: I wasn't going to vote for you anyway, but that confirmed my decision.

People like to invest in things they can understand, and buy-to-let as a concept is understandable to many, if not its finer points.

All those other investment vehicles you have mentioned are, or seem, intangible to many of us plebs, which we don't like. We don't really understand them and their success is largely outside the control of the investor.

In Cambridge LadyCatherine. Prices are completely detached from reality in relation to salaries here.

landlord-hater central. With a spice of manager-babble in the OP. Excellent.

ethics is where you find it. Do you wear makeup? Useless wasteful industry flogging stupid ideas, but you support it. Do you wear disposable fashion? Shame on you. And so on.

I am all for ethical ways to look after money made by work. Do suggest. No-one wants to be a landlord.

Like you, the politicians blame it all on the landlords; especially the airhead greenies. Like you, they aren't worried about people selling mortgages at a profit which is the same thing. Yes, there are bad landlords who should be dealt with. There aren't that many. There are also crooked and rogue tenants WHO ALSO WRECK LIVES.

no, of course property is not a safe investment. Only the dumb think there is such a thing. Savers are dirt and have been for years, propping up low mortgage rates (equals DEBT) hence many have to try property to possibly protect against inflation. Which is NOT zero.

I hope you are also giving hell to anyone you know who buys or bought their council house.

wishing you what you all deserve but do check the mirror. And I repeat, do tell me the mumsnet approved way to preserve earned money. I am listening.

jacks My friend was totally entitled to sell both properties and do whatever she liked with the profits. So does any BTL LL.

Whether it is morally correct to make two families homeless just so that you have more disposable income was the first thing I thought when she told me, and to me the answer would always be 'No'. It wasn't the only issue, but I no longer speak to this friend. She is not a very nice person and knowing she made two families homeless so she could have a splurge changed the way I thought about her to be honest.

My other friend has been a victim of the letting agent and the LL. They want their house back, so she doesn't have a home anymore. She has done literally NOTHING to deserve this plight, other than being too poor to own her own home.

That is the issue with BTL investors who don't know what they are doing. You either commit to providing a home for people in return for a decent ROI through rent, you do repairs, you don't take stupid risks with their home for the chance to make more profit. If you do that, you can retire with the mortgage paid off and have the rental amount as your retirement income.

If, like pixies friend, you don't know what you are doing, you may borrow too much, be unable to pay it back, not know your rights and responsibilities so fail to provide your tenants with the service for which they are paying you. If you default on your mortgage, you can keep taking rent until the bank foreclose and then walk away, leaving them with no home. Or if you get bored and want out, you sell the place, leaving the tenants homeless again.

I am not necessarily saying BTL LL are all evil and to blame, but if you take part in any investment scheme without doing your research, you are at risk of losing your money. Unfortunately when that scheme is property which includes other people's homes, your bad decisions will be costing someone else the roof over their head as well as you your money, and that is unfair; they didn't take part in a risky investment scheme, they just wanted somewhere to live.

You can have three santander 1-2-3's as a couple. So that's 60k @ 3% - especially next year with the changes to interest income in general taxation.

You can have 3 Lloyds club accounts as a couple. That's 15K @ 4%

You can have 3 TSB accounts. That's 6k @ 5%

You can have 3 Tesco accounts. That's 9k @ 3%

You can have regular savers at lloyds and First direct. 4% and 6% respectively.

There's your 100k. All for setting up a few standing orders. No boiler hassles.

You do not need to farm people.

I just think someone who can't even find a BTL deposit without risking their own roof is not going to be a good landlord, because they won't afford it. They'll be the sort who try and diddle the tenant out of their deposit to redecorate it, because they've not got the cash to do necessary maintenance work between lettings.

It is NOT the same thing to get a mortgage specialsubject.

If you get a mortgage you are made aware of the risk, you are expected to understand your property value can go down as well as up, and you understand the risks, or it hasn't been sold to you legally. Just like every other investment.

If you rent no one tips you off that your ll hasn't done their research, so after six months you'll be homeless as they won't be making as much money as they thought so will sell up to make a quick profit.

I know you are sick of ll bashing but even you admit it is not something you should be doing if you are an amateur.

I do blame politicians actually, rather than BTL LL, there is no way the mass sale of council houses should have been permitted without using the money raised to build new social housing. But there doesn't seem to be a single party interested in securing decent, affordable housing for everyone, and every day the problem gets worse and worse, and then likelihood that anyone will spend the sheer amount of money and time it will take to fix gets smaller and smaller.