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.

So what exactly is accidental about your situation? I don't understand your use of the word when it looks to me as though you weighed up the options and made an informed and deliberate choice to hold onto a flat and rent it out? Does that somehow excuse you from something?

Accidental landlordism in some cases could be stopped in a heartbeat if we allowed porting of negative equity to a new mortgage. A lot less hassle all round, provided the debt can be serviced.

Labour are proposing rent controls at inflation (which is about 0.5% pa) and standard 3 year tenancies unless the landlord needs the property to live in, I think so voters will have some choice. Also they are going to reduce from 10% to 5% the amount of the rent you can set against wear and tear in some cases which is another change although landlords spend a fortune doing repairs.

I regard capitalism as a moral good and the best system there is and that those who practise it do God's work. So obviously I am at utterly the wrong end of the political spectrum to the original poster. I see women and men who seek to provide for their families are the ultimate pinnacle of moral rightness and those who don't and who just rely on the state as morally wrong. So anyone who tries to provide for their family in future by making savings, a pension, buying a home or a buy to let or buying shares is the person who is doing the right thing and those who spend everything, don't work hard and save nothing the morally wrong parent. Obviously if you work very hard in two jobs and still cannot save then I will give you a dispensation from the fires of hell I suppose.

Also some tenants think buy to let is full of awful people who are stealing from tenants. That is simply not so. Most landlords have one property they rent out. We had two, sold them at a loss and no capital gain, just a loss . To seek to provide for the family. We list and the tenants of course gained as they were housed at our cost.

My daughter bought one flat 2 years ago - her first and could not afford to live in it so slept with friends or at home until she could. She made no profit on the rent after costs but has just moved into it now. I don't see why her purchase was morally bad. She housed two young doctors who were not ready to buy in London as they move around the country at that career stage. I don't see anyone losing out. My other daughter's husband had a one bed flat. They married, bought a 2 bed and he's kept his one bed for now and let it out this year. I don't see him as being morally pernicious. I see it as him taking a wise decision to protect his family and provide vital housing in London where many workers come and go and do not want the cost of buying. When you buy in London you pay masses of stamp duty so it tends to be expensive to keep selling.

Finally I though this thread would be about the bits in the Bible and Koran against interest. Back in about 1500 Christians in the Uk did not charge interest and many Muslims today will not charge or pay it. So there certainly have been religious groups who regard interest as wrong although the very silly getting round the rules Islamic finance stuff not calling a spade a spade can hardly please any God.

"I regard capitalism as a moral good and the best system there is and that those who practise it do God's work"

You are Lloyd Blankfein and i claim my £5.

You also ompletely misunderstood me. I am completely against any form of state help or intervention in markets. any safety net should only be for genuine need. Noone who works should need it. However, state subsidies to landlords and corporations ensure that they now do. How did this come about. Croney rigged capitalism. Not free market ones.

I don't know what you m ean by state subsidies to landlords. In any business if you have costs you set them against your receipts. I pay £ XXXXX in my business to others for various services, for stamps and the like and I receive from customers £XXX and my profit is what is left. Are you suggesting landlords should be taxed on profits they have not made? That seems very strange. Every business in the land sets it interest, cost of goods, cost of wages against its receipts before paying tax. To change that would be a major change - If I buy goods for 99p and sell them for £1 my profit is 1 pence and I am taxed on that. What is wrong with that principle?

Landlords also pay 28% capital gains tax when they sell the property.

How many times do we need to mention housing benefit paid to working people subsequently going to private landlords as being a direct transfer of tax payer state/state borrowing before it registers?

This is not about claiming mortgage interest as a business expense. That is a sideshow.

OP - the thing that strikes me is you will respect your friend less for not engaging in discussion of the issues, but you don't think that she might have already considered them, dismissed them as unimportant to her but not want to debate with someone who is so clearly strongly of the opinion she is wrong.

While you can make similar amounts from a portfolio of investments, that takes a lot more work and research. You are talking about markets that a lot of people don't already know, and more than one thing to research, then you have to keep reviewing, those numbers won't stay the same for long. Most people are caucious about investments where they think they don't know all the risks, but most people do feel they understand the risks and issues in the property market, and it's easy to access the information in an easy to understand way.

Buy a buy-to-let, do your research once. Hand over the decision making to a management company. Sit back and do nothing for 20 years, occasionally you might go look round between tenants and do some decoration, but often letting agents will deal with that too. House prices might fall, but they won't be doing that in one day, you don't have to make decisions quickly or constaintly reviewing your investment decisions. For most BTL landlords, it's not "BLT or another portfolio of investments", it's "BTL or no investment".

You effectively gave her a lecture and told her you are more ethical and more intelligent and financially savvy than her. I think you should apologise. She was telling you her news, not asking you to advise her.

In the future, save your opinions for when you are asked for them, if you don't like someone's decision, tell them, but wait to be asked "why" before launching into detailed explainations about why they are very wrong .

Porting the negative equity debt onto a new mortgage was done back in the nineties. It isn't a new concept.

When my eldest daughter was born in 1995 we lived in London in a top floor flat which was in negative equity and really needed to move. We were fortunate in that a financial gift from my parents plus the sale of a PEP we had been saving into and renting out our flat enabled us to buy a house out of London.

The flat was rented out for several years. It did nicely and within the first couple of years had more than doubled its original value. We kept it from 1996 and sold it in 2004 to help pay a large deposit on our current family home. It was actually bought by the sitting tenant, who had phoned us himself with a good offer.

If we had taken the negative equity with us when we moved back in 1996 then it would have taken many more years to pay it back.

Porting the debt isn't the panacea to everything.

oh and OP - the huge waste of tax payers money that is HB is not just down to small BTLers, it's the bigger private landlords that cause much more problems in that market, although the BTL mortgages that effectively ban HB tenants do distort the market, HB is pushed up by the limited number of landlords who will rent to HB tenants.

So bwvause you had an external financial gift, you didnt have to port the equity. Your anecdote is meaningless to others who don't have that external injection of funds.

Oh and don't thinl because i suggested porting mortgages with negative equity that i think its the best solution. Perhaps the best solution is anyone who borrowed too much money defaults, and is replaced by someone who can afford it. That is actual capitalism. I was suggesting a way to allow the person to avoid that, but whatever works.

I'd get state help if I didn't have my rental property, because my wages aren't high enough to support myself and my children. My decision to buy to let is the thing that has prevented my reliance on the state, and as my tenant doesn't claim HB, the whole thing has nothing to do with the state at all. It means I pay income tax instead of taking benefits.

I fail to see how that situation is doing anything bad for society. It just isn't.

You are coming across as if you think everyone who tries to provide for themselves by providing housing to others is greedy and immoral, and that's plain inaccurate. Do you have the same sort of feelings towards businesses that sell food and clothes what with them also being essentials that people need, and often pay for out of state benefits?

I apologise for the patronising comment I made yesterday, it came across worse worse that I intended it to. I stand by the point though, it is not morally better to make money out of banking investments just because the dubious ethical practices they use are a few steps removed from the investor. In my opinion it's worse, because the people who end up suffering are likely to be in a far worse position that anyone in this country that can claim housing benefit.

So it is ok if the rent comes from renter's income but not if it is subsidised by housing benefits?!

Many btl landlords are simply trying to make rational economic decisions trying to secure their financial future and avoid having to rely on the state.

APlaceOnTheCouch. Superb, irrefutable points on the asset allocation within my pension
Thank you and you're welcome

The point I was making is that considering whether to invest in pensions (labelled ethical or not) or/and property can throw up similar dilemmas, and it's neither right nor wrong whichever side you eventually opt for, as long as you can justify it to yourself.

I'm accidental because I bought my flat to live in. I did not buy to let. However, I've created a small safety net for myself by not throwing my lot in with my dp. Having also been a renter for the best part of the decade, I am now a decent ll who likes her tenants, follows all the legal requirements for electrics testing, boiler safety, rent deposit scheme etc, and keeps the accommodation In good order for my tenants, who wouldn't want to buy even if they could (on a grad programme at a small branch of a company, will only be there for a couple of years max).

So small ll, who own one property or maybe two and care about their tenants are, in my opinion, the sort of ll we should encourage. Not the slum landlords who own 100s of tenements and terraces and keep their tenants in horrendous conditions and unfair situations. I think the more that individual women sought this strategy, Where financially possible, the better - and perhaps fairer and kinder - the rental market would be.

Oh great, another conversation I'd better not have with my friends, in case I'm judged as you are judging your 'friend'.

I agree that too many people are forced into renting who should be able to get a mortgage on their wages. I put it down to the babyboomers, who were able to buy houses for 13 000 then sell them down the line for 130 000 all swopping and upgrading between themselves and unwittingly pricing their children out of the market.

Coupled with this is the fact that so many of these baby boomers are now able to purchase a second home to rent out as an investment. It is unfair and something needs to be done (what, I do not know. House prices should come down.)

On the other hand, many people cannot get a mortgage and have to rent so there is a demand for rentable housing. So whilst your friend is part of the problem, she is not causing it and actually might make a good landlord that someone needs in a home that they won't have to move out of for a very long time. Perhaps look at it that way for now. The root of the problem began in the 80s with the selling of council property and the increase in house prices for that generation. Today's market is the end result.

Governments could at least make a start by restricting rich foreigners buying up London and uk houses for a start.

I dont think it's fair to blame the baby boomers for selling their properties for what they are now worth. Anywhere else they want to buy has also gone up in value, so while they have in theory made capital gains on the property they bought years ago, if the value of every other property has gone up at the same rate, it's meaningless paper money.

I get that these people are fortunate, but that is as a result of their own choices. Not everyone that's baby boomer age chose to buy their property, but those that did were probably just trying to buy themselves and their children some security. That is the responsible position take, they wanted themselves and their children to be as unreliant on the state as possible, and that is all they had the power to influence. They didn't know that house prices would go through the roof, or that social housing wouldn't be replaced, or that the population would grow and divide meaning that demand for housing would eventually far outweigh supply. These are just people trying to take responsibility for themselves within the systems of the country they live in, and that attitude should be applauded not vilified.

housing benefit is a completely different subject. you are entering the realms of political decisions on housing/council house stock selling off/housing associations
all very valid areas for discussion

honestly though, these shares, how do you justify that to yourself? i have massive ethical headaches over investments. i am wondering about entering the field of microloans - any opinions on the ethics of that as a way of making money?

ok so shares in large questionable ....one questionable justification is that I'm gambling on spotting prices that the market has mispriced. I'm not investing at ipo, merely buying someone elses stake in it for a while. I'm relying that my guess about future price is going to work.

I've also been known to short sell. Shocker eh.

Thats not great i know. But its a damn site easy to swallow for me than borrow to let.

So how should people who have a little money to invest do so without having any negative impact anywhere?

Because I just can't see that it's possible no matter how pure a persons intentions. Truly ethical investments may as well just be considered charity, because they aren't going to make an investor any profit. Which is fine for the mega rich person who has already got their money that's probably been made on the backs if those less fortunate and can afford to lose, but what about those very small fry people that just want to take responsibility for their own finances and have some security?

The right answer doesn't exist, everyone has to do the best they can with what they've got.

I slept on this notion - what is ethical and really, the easiest conclusion i came to is your own business. Offering services that people want that aren't exploitive, in direct receipt of state subsidy or involve borrowing money from a bank.

I'm in a fairly unusual position to actually be able to realistically do that - it will involve me getting off my arse though. i appreciate that others might decide borrow to let satisfies some of those criteria, but nothing anyone has said on this thread has changed my opinion.

I have never bitten off more than I can chew, pixie. Thanks for the unsolicited and patronising advice anyway. Don't know how I have managed my property and investment portfolio all these years without it!

I had a way out of negative equity without taking it with me. I used it. I didn't have to sell my entire PEP to cover the shortfall though I had the potential to do that if needed for the moving deposit.

My solution was let to buy. It worked well. We researched it, and I am not sorry. We have done buy to let a couple of times since, again well researched and not willy-nilly.

You don't have to like it, but we do and we look after our tenants, act well within the law etc. Nothing unethical about that.