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.

There's a major difference. The creation of credit money on the part of the bank, and the borrower's ability to leverage a smaller deposit. They wouldn't be able to make the investment without it, and outbid an owner occupier. Something that's frequently been done by recycling housing 'wealth' gained through that system. Credit money itself is a big problem being counted on the banks asset sheets when the ability to pay that back disappears - we went through this in 2008.

To be clear, not once have I mentioned bad landlords as a problem. The problem is with ownership of rented housing through borrowed money.

The economy is rather based on the ability to borrow money. Sounds like you should be lobbying for a change in the law, rather than upsetting your friend.

Again, RainbowFlutterby I am desperately sad for the situation as it stands. But standing back and letting it get worse is going to be a problem in future. I fully understand in the here and now that people probably think the status quo can't be meddled with.

But there is so much meddling with the housing market that it's going to eventually explode again, regardless. It will. We have politicians leading the country who are buying votes purely on this bizarre perception that residential property should be viewed as an asset class. It will not end well. I can't see why that isn't something that can't be discussed without fear of being treated as scum.

I am lobbying for it :-) The replies I got were laughable. The politicians either pretend to not understand the points, or worse, simply not understand them.

The interesting thing is these things are talked about in papers like the Financial Times, but frequently ignored in the others and journalists are barely allowed to challenge anyone these days on TV anyway.

The issue js not whether buy to let ethical or not.

It is whether you and your friend both are happy to criticise and discuss eachother's ethics.

Would she criticise your air travel/meat eating/choice of education/ etc? And would you be happy for her to do so?

I think it is unwise to try and give friends financial advice or how to best invest their money. A self investment pension? Wouldn't that be just as risky as investing in property. Hmm OP I'd stick to worrying about your own money and how to hold on to it. Hope you're not a non dom.

Very interesting OP. It has made me think.

My pension was mostly lost in the Equitable Life debacle - and then I stopped paying in.

I have also thought of borrow-to let. Why? My work is disappearing, I am getting older, I have almost no income, (but no benefits because I saved), and due to health, elderly parent and various other things have had to use any savings I had. The only thing I have is "equity" in my home.

I feel cornered. And it seems like the only option. But there are risks I know. Your post has made me think twice though.

An interesting debate.

#2 - probably bidding against other btl, not owner-occupiers. Buying a property isn't always "snatching it away" from others. For some people who don't qualify for social housing (and I wouldn't want to live in those areas anyway) and can't afford a mortgage the fact that people do btl is a god send.

YABU. I think just about everyone I know has at least one BTL property, one friend has 36. Thank god we don't live in some nasty socialist shithole where nobody is allowed to make any money!

Discussing money and politics with your friends can be a recipe for disaster - and you managed to combine both...

everything whatlifestylechoice says
i could respect an opinion on btl as unethical, but to advocate shares instead as any kind of better ethical choice???????????

YABU. You should be arguing against foreigners who BTL in the UK purely for investment, not your friend who lives here.

But the problem is you will not even have the opportunity to engage in anyway with these foreign buyers.

IMO yeah, you were unreasonable. Your friend didn't ask for your advice or opinion but it sounds as though you were extremely critical. If you wanted a debate a comment like 'I'm not really sure about the ethics of btl, it makes me a bit uneasy' leaving the door open for her to ask why.

You say that she shut you down and wouldn't discuss things, but really she doesn't have to discuss this at all, or justify herself to you.
.have you considered that by being so critical of her decision she may wish to speak to you less about somethings in the future. I understand you feel passionately about this , so perhaps thats a price you are willing to pay.

OP - are you sure you didn't come across as a rather pompous judgemental arse when lecturing your friend on her poor judgement and morality?

The removal of the Rent Acts has led to much better and much more private rented housing (there used to be virtually none due to market interference). We are very lucky indeed that there is private rented housing out there. There did not used to be and people had to live at home for life or sleep on the sofas of friends. I am old enough (just) to remember those days of just about no rented housing in the UK. It was dire. Now may not be perfect but at least there is property available to rent.

I disagree with all those arguments and your friend is not only making a wise decision in taking out a buy to let loan but helping house people so gets double stars for wisdom and social good.

YABU! You did sound quite patronising. Pensions are possibly a very bad idea too - are you not aware of the hundreds of millions in pension funds that were lost in the financial crisis? Your friend may well make a decent return scant you just be happy for her?

Well said Whatthefuck. I am in exactly the same position. I have spent a fortune on the property recently after a bad tenant. I have completely decorated and renovated for new tenant. Deposit protected, insurances paid and gas certificates. I look after my tenants as I value good long term renters even though they pay less than market rate. My mortgage is paid which I appreciate but no profit really.

Yabu as your friend probably wasn't expecting a blunt disagreement about her life choice that she's was probably excited about sharing with a friend when out for lunch. It's one thing having an opinion on something but blatantly putting it out there & disagreeing when she's said she IS doing it, is a bit mean IMO. If you'd tested the waters by saying, 'it's not my choice of investment for many reasons but hope it works out for you' or some such non committal response that you can reconcile yourself with, would have been better. In short, I'd be annoyed if you'd pissed all over my chips.

I don't think recommending a SIPP for everyone is a great idea though. It's a lot of work for most people doing enough research & understanding enough about all the possible investments.

Historically owning property has been profitable & I'd buy a BTL round here if I had spare cash, knowing it's a relatively safe investment.

Thinking about how anyone 'earned' their money is often likely to make you more bitter also.

Hope you've managed to smooth things over with her :)

Borrow to let people are usually greedy parasite scum.

I can't believe they are still printing money to hand it out to the haves of the world to still do this.

I can see social breakdown in the future.

YABU. I think just about everyone I know has at least one BTL property, one friend has 36. Thank god we don't live in some nasty socialist shithole where nobody is allowed to make any money!

Borrowing to let is the same as any trade - someone has to lose in order for someone else to win. Comments like the one above are interesting, because at some point, when almost everyone is on one side of the trade, it falls over, and the winners become losers trying desperately to sell into a market where everyone else is also a seller.

For anyone willing to leverage themselves up to do that, take the risks of a commercial debtor rather than a residential mortgage holder, and suck your losses up without bitching about how unfair it is when it all goes wrong, then go for it. But I really hope the fans here understand the effects of leverage when it goes against them, because they aren't going to get a lot of sympathy from anyone if it all goes tits for them, least of all the banks.

bluesky I'm not aware of any people who lost their pensions in the 2008 crash. Is that the one you're referring to?

I do not agree that buy to let people are usually greedy parasitic scum. I do agree that if people decide to do this they should be able to manage the tenancy at the property properly in a practical and legal sense to be fair to their tenants.

I dont think the increase in buy to lets is blocking owner occupiers as it is a free market and if someone wants to buy the property as an owner occupier they can compete for the sale alongside someone who wants it as a buy to let just as two or more potential owner occupier buyers would. Yes there are properties being taken up as buy to lets but this is only the case because owner occupiers are either not outbidding them or cannot actually afford to be owner occupiers.

The issue of housing benefit being paid to private LLs - that doesnt happen because people are buying buy to lets as such. Of Local authorities bought up previously private rents and made them social housing then they wouldnt need to pay private LLs. The reality is they dont have funds to buy all of the extra housing stock required to house all people on HB and it is cheaper/easier to simply pay out HB to private LLs rather than find the money up front to buy up stock/build stock and manage tenancies. I dont see how that is the fault of private LLs.

If suddenly people stopped buying buy to lets, local authorities wouldnt magically get funds to buy homes, joe public wouldnt magically qualify for mortgages and have deposit money, and actually potentially it could be worse as there wouldnt be so many tenancies available.

Enemjoyijg th3 debate. There appeard to be some strange ideas going on that if borrow to let was suddenly to become unpopular, for whatever reason, that people would be homeless and here would no longer enough property to go round. Would the homes.just disappear then? Would the heavily leleveraged ust sit it out till Mr Banker arrives and forecloses? Or would prices correct, and people on normal salaries finally be able to afford to live in the places they currently have to rent? You know, like they used to.

What about accidental ll? I bought a flat and a couple of years later, I moved in with my dp. Eventually, I leveraged a bit more money out of my flat (which had gone up in value) and together we have bought a little house. However, we are not married and he earns a lot more than me. We have a deed of trust, but if things went sour he would have the financial clout to screw me over - although I'm sure he wouldn't!

But, My flat is my protection: it is in my name, it is my bit of income to cover me (I'm self employed and my other income goes up and down). My tenants are young graduates who are working for a year or two with a local company. When they move on to another department or back to university, I will have some other young tenants come in from the same company. As I look after the place myself, they just text me and I sort things out. We had beer and mince pies at Christmas (brought round by me!) and, having rented in some proper shit holes in London (we had an electrical fire due to incorrect wiring, ice on the inside of windows in winter as no proper boiler), I would never do anything exploitative to my tenants. I also don't do flat inspections, as we were renting somewhere where the estate agent would video the house every three months as part of an inspection, which was so invasive.

So please don't tar all ll with the same brush!