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.

No-one wants to be a landlord.

I think BTL has become the 'go to' investment is because you can do it on credit quite easily. If you go to your bank and ask for a £150,000 loan to buy art/gold/stocks/whatever you are going to have a pretty hard time getting anywhere. Whereas borrowing to let is well established and due to previous good spells is expected (by some!) to be a good bet once again.

Well, I dont really see the problem. If people are not renting there properties out then where are people who need to rent going to live?

I have 2 properties rented out that are paid in full, tenants can afford the rent and im not taking advantage of anyone. Meanwhile I get to save 1000 a month away for future for my family. It's a great investment and not unethical at all if nobody's being taken advantage of. Yes I'll sell them when I retire but people sell property all the time. It'll be done when the tenants contract expires just like any other retal property

If you feel that strongly that something is unethical, then I think you’re absolutely right to voice it to your friend. She probably hadn’t even considered it from your clearly different point of view, so mentioning it can only ensure that she has more information and opinion at her disposal, with which she can make an informed decision.

Anyway, hope you all make use if you're in a position to do so of that free guide to a relatively hassle free guide to making circa 4k for an afternoon's work setting up standing orders.

Anyone wondering about satisfying the using it as a current account criteria - use tesco internet savers to create your own direct debits (hoover the interest into these), and just make sure you put in a nice circular standing order for the right amount.

You can also make another £120 a year with halifax accounts, and get free travel insurance from Nationwide.

All I ask for this advice is you think about other ways to secure your future other than renting out what could be someone's own home. Thanks!

'I think BTL has become the 'go to' investment is because you can do it on credit quite easily. If you go to your bank and ask for a £150,000 loan to buy art/gold/stocks/whatever you are going to have a pretty hard time getting anywhere. Whereas borrowing to let is well established and due to previous good spells is expected (by some!) to be a good bet once again.'

Exactly this. It's still a risky, leveraged investment and yet is treated entirely differently. And used by a lot of people who don't understand all those risks. That isn't great.

You don't really belive that the profits banks make to be able to pay interest is made ethically do you? Really?

Bless.

Thanks for the lovely, patronising comment PtolemysNeedle.

I'm fully aware of the lack of ethics on the part of banks, thanks. But let's face it - the banks lack of ethics is thinly spread across money laundering for drugs cartels, lending on commercial property, other investment assets and their ability to magic loans out of thin air for property.

Taking their interest on your bank credit is requires far less of a conscious, direct decision than to invest in residential property for the purposes of income. Or people farming using borrow to let, as I call it.

And anyway, I was merely correcting someone who had incorrectly stated the amount you could earn through bank interest.

I'm no idiot, and you sound absolutely lovely. Bless you.

Saucy jacks, would you really not respect me if we were friends? When I moved in with my partner I decided to rent my flat out rather than sell it, because much as I love my partner for personal reasons I've always felt it a good idea to have an escape route...if he throws me out or if things go back my flat is my safety net.
I rent it to someone on a low income for £300 a month less than the market rate, because I value having a tenant I trust more than I value profit, and also I wanted to help her out by giving her cheap rent.
By the time I've paid the mortgage and tax on the rent there is nothing left, I appreciate that it is paying towards the mortgage though.
So I think there is no reason to not respect me, my tenant gets a long term rent at a much cheaper rate than usual for round here, I get peace of mind that someone lovely is in my flat but if everything goes tits up with my partner I will not be homeless.
I think it's really crass to assume that everyone who is a landlord is a basterd, I bet if you had a daughter/son who owned a home and was going to move in with a partner you wouldn't just advise them to sell up and hope for the best!

By the way, thanks. This is much more of a debate then being told to shut up.

I have never once said that anyone who does it is a bastard by the way, nor that I am going to stop being friends with my friend because of it.

I don't think landlords are bastards. Mine isn't. But I prefer it when people do weigh things up rather than just going into it because they've been listening to some person with a heavily vested interest spouting on the news.

I know, sorry I was paraphrasing :)
It was saucyjacks I think who said she wouldn't respect a friend who became a landlord

Well, I can't say I won't respect her less - mainly because she refused point blank to even contemplate the issues. But that's fine - I was being a bit blunt.

YWBU on a few different levels. (1) She didn't ask for a critique of her investment decisions. (2) Your objections are very subjective being based primarily on emotion, anecdotes and it appears a complete denial that actually there are people who choose to rent and benefit hugely from people like your friend providing properties.

If we're sharing anecdotes as a basis for making financial decisions then I've lived in 4 different rented properties at different times in my life. I wasn't exploited or in misery. Neither were my flatmates.

Taking private LLs out of the housing market won't stop there being a deficit in social housing. The Tories increasing the right to buy will.

Anyway, as someone who has an ethical pension, I'm also amazed at your faith in more ethical pension options. Both from a return on investment perspective and on a blanket acceptance of their ethics. Even 'ethical' pensions are rather far removed from the beacons of virtue that their name suggests.

Looking at my pension, it's self invested.

There are definitely some questionable choices in there, no doubt. Miners, banks, privatised utility companies, amongst other things.

I'm not pretending to be an angel. But none of these things (well, apart from a fund which contains Severn Water), directly deprives someone of stability in Food, Water or Shelter. And certainly not as consciously as doing it myself with borrowed money.

Neither am I rallying against Landlords who got into it years ago, before the BTL mortgage became something widespread in 1996, and had to use their own money to do so. Or people who do that today. I said as much in my OP, though I do think times have changed and when you look at how housing is allocated today, it's way worse than 20 years ago, so going into it now raises new moral dilemmas.

Right to buy is the most abhorrent thing going. I'm no fan! It cynically causes further division - private renters get jealous of poor people in social housing who are perceived to be receiving a lottery win.

OP these buy to let are good investments and I have yet to find a pension that will give you the same return on investment.

I can see why you think it's unethical but I have to say, if no one was buying houses to rent, where would people who need to rent and don't qualify for housing association type of housing would find somehwere to live?

As for respecting her less...
your friend wasn't asking for your pov, you gave it anyway but now you are upset because she didn't seem to listen to your objections??
Serioulsy, when someone is bluntly (in your own words) telling me I've got it all wrong, I tend to shut down and not listen.
IF this is coming from a good friend, I might think about it again later on, think about the reasons and have a look and then decide or not to change my opinion. But I certainly wouldn't, in these circumtances, tell yu how happy I am that you gave me your pov and that I will review my investment strategy just right now

Plus I don't think any of my original points were anecdotal by the way.

Your dilemna has nothing to do with the BLT though.
Your issue has everything to do with the lack of social housing or the lack of housing (Note England is far from being the only country with similar issues, incl ones where BTL isn't a good option for build up a pension. So somehow, I doubt it's all down to the people using the BTL)

And rental houses aren't 'allocated'. You chose what you want to rent.
As prices tend to go up when there is little houses to rent, I would have thought you would love people going for a BTL, making more houses available to rent and therefore bringing prices down.

If you can't make a similar return (or indeed a much greater one, as I do) from your own pension, then you're not doing it right and you're being exploited by the financial services industry. Asset allocation (rebalancing regularly) and diversification are not rocket science, and my point is that anyone thinking of borrowing hundreds of thousands of pounds on a single investment should be capable of making similar decisions.

Let's try and go down a different route. The buy to let mortgage is not that different from a derivative like an Option, or a Spread Betting account, or a Contract for Difference, or a leveraged Exchange Trader Fund.

These are sophisticated investment tools. Joe Public is frightened of them. But property? 'Can't lose'. That perception needs changing.

Pixienott
my isa's mature in a few weeks.
should I invest them ethically or should I try to get the most for my children.

If ethically, what magic beans do you favour ?

'As prices tend to go up when there is little houses to rent, I would have thought you would love people going for a BTL, making more houses available to rent and therefore bringing prices down.'

Yes (if you mean bringing rental prices down), that's absolutely true in theory. It is a good point. However, rents are backstopped by housing benefit, which is a distortion and therefore the market isn't a true reflection of what it should be.

DodgedAnAsbo.

By all means, go balls deep on buy to let. See you in 20 years when your kids mates want every politician, banker and landlord in the country lynched.

But none of these things (well, apart from a fund which contains Severn Water), directly deprives someone of stability in Food, Water or Shelter

If you think that is true when you have listed miners; banks and privatised utility companies then you need to look again more closely.

Banks support the arms industry. Mining in the Congo has helped to destabilise the entire region negatively impacting on food, water, shelter and security. Utility companies and their subsidiaries have devastated areas of the rainforest.

Perhaps your friend, rather than being less informed that you is actually more informed. A self-invested pension could be considered unethical and outwith your control (at an impact assesment level).

Some people seem to prefer such arms-length investments because they don't have to face the impact of their decisions. Your friend might think she knows and can manage the type of LL that she is. She can't impact on the choices or actions of her pension funds at any tangible level.

exactly so, pixienott

you base your worldview, your life and your moral compass on a dogma.

most people who invest use market signals, not a dogma.

you carry on though. more for the rest of us

Property is a bad pension investment- you'll lose a huge amount of the cash in tax (income, stamp duty, capital gains) by the time you realise it whereas a pension scheme is free money if you get a company contribution + tax free.

APlaceOnTheCouch.

Superb, irrefutable points on the asset allocation within my pension.

So again, let's go another way. We've ended up with a society where everybody is forced into being a speculator because of the financialisation, corporate greed and apathy of the public.

It's an upsetting truth.

However, a massive reach to think she's less informed than me. I think not. At least I'm capable of questioning my own decisions again, as you've just forced me to do. I'll take another look at managing returns in a more ethical manner.

I do doubt Buy To Let will form part of that though :-)