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.

Get a grip. Of course it isn't abhorrent.

I think further back you indicated that you rent yourself?? Your landlord either inherited the property, bought it outright somehow or has bought it with a mortgage as many others do. That is if it is a private landlord.

I wouldn't ever raise the capital for a deposit by using my own home as security, though I know some have. That is their choice and their risk to take. For me THAT is a risk too far.

Property is a long term investment, much of it not ready cash. As with any other investment, the value can go down as well as up.

Oh, and I will freely admit that I have accepted housing benefit from tenants who have fallen on hard times, been made redundant and need time to look for another job.

Don't tell me that is unethical. I won't render them homeless. To me THAT would be unethical. It has rarely lasted too long, and I have no problem with it.

Your ability to detect my portfolio management facilities through the medium of my words is an incredible skill. Addtobasket I salute your abilities.

So because I've managed to keep the liquid cash element of my overall assets (a fraction that is deal with mechanically in reallocating periodically) in current accounts earning a rate of interest, done in an afternoon or two, I'm unsophisticated. Incredible.

Oh and I'm on a phone, if you were sneering referring to the occasional typo. It's Rachman, not Rackman by the way if we're going down that route, but let's not.

Not allowing tax relief for landlords on mortgage interest payments, and perhaps a higher rate of tax on rental income would be more practical and actionable interventions than removing borrowing to let or housing benefit.

I don't like the idea of treating landlords differently to any other business. Makes the world unnecessarily complicated. As part of a flat-tax proposal in the US a decade or so ago it was suggested that interest income should in general not be taxed, but that also interest paid should never be a tax-deductible expense for businesses of any kind. This system would be administratively simpler than the status quo. It would also remove the tax incentive for businesses to prefer loan capital to equity, which would be good for financial stability. I quite like this idea, but can't see it ever happening.

I guess as a LL I've made the morally superior decision to not take on housing benefits claimants as tenants then. Not sure how that computes.

OP, you perhaps spoke to your friend in much the same way as people are now speaking to you.

You don't like it, but I suspect it is what you did.

There is nothing wrong with your investment decisions and nothing wrong with your friend's in principle either. Property investment is just as valid as any other.

You are have referred to your own situation and that is what I am following up. I am not trying to catch you out, it just doesn't sound, well, very sound. If you have all this money in current accounts then you are being badly advised or you have simply allocated your money unwisely.

Classic stuff though eh. Addtobasket is now doing the media and societies favorite trick of attacking the person rather than the ideas. Try and discredit them as a person - (without a shred of actual evidence in this case about my own position or skills), and any destroy any validity to their opinions by making other point and laugh. Not sophisticated, just utterly transparent and very lazy.

If you have a large amount of assets, it is widely recognized as always wise to have some in cash as well. And I'm actually getting a return on it. Blimey what is difficult ultimate to understand about that? It forms a predetermined fraction of my total assets, isn't very risky and is utterly liquid. There is multiples more invested elsewhere.

I'd argue it's you who is demonstrating a lack of knowledge over portfolio management.

I don't know you so I'm not attacking you.

Your ideas, however, I am challenging. Your ideas about investments, your ideas of the UK's housing crisis, and your ideas about the role of morality in investments. Also, your idea of how it is OK to interact with your friends.

Theoretician - I don't like the idea much myself, as a landlord, but it would be relatively easy to implement. There is box on the tax form where you put property income so easy to change the rate. Whereas the OPs suggestions are not easy to implement, as far as I can tell.
I do agree with the OP that there is a problem with the housing benefit bill but you can't just scrap it. Would cause chaos and a recession.

One reason pension funds don't invest in residential property in the UK, but do elsewhere, is because the returns are not high enough and risks too high even allowing for interest issues by the way. Now if we could make tenants pay and indeed organise and fix for things like new boilers and the like as happens in a good few continental countries and redecoration of the property then letting out property might prove more attractive as an asset class to large investors like pension funds.

I don't think people are attacking the poster. I was the one raising the Christian and Muslim prohibitions on lending with interest and raising that fundamental issue that misguided religions have that charging people to borrow money is for those people wrong.

People deciding how to invest in their pension or if they are lucky enough to have any savings after they have paid for their food etc have to pick what they think will be a safe place for their money. I don't think providing a home to someone else is a worse way to spend your savings taking massive risks in doing so than buying shares.

Attacking my ideas on my own investments though from your standpoint of cash not being allowed to form a fraction of an investment portfolio makes me question your opinions too though. Perfectly valid I'd say.

That is presumably not to me as I've not attacked anyone's investment decisions.... not in a position to being the poster who made losses on buy to lets on sale of them and no savings (like most people in the country)!

A wise choice for savings can be a third cash, a third shares and a third property.

You are absolutely not being unreasonable. I am biased because I agree with you but I think there is more to this than that.

a) Nobody wants to be told after their careful and deliberated thoughts about investment that their idea could potentially harm others. Nobody would willingly see themselves as bad or an exploiter, hence they'll just want to change the subject as they won't want to acknowledge this idea as it conflicts with their own view of themselves. After all, it is what everyone else is doing, so it must be okay, right?
b) Once you're in a position of wealth, you're less likely to give it up. Once something benefits you, you're less likely to give it up. You're not going to act against your own best interests. Anybody on 'the other side' of this investment is just naturally unreasonable as it is where they are. They're just jealous of course.
c) I bet there is a 'immoral' investment that your friend has not thought of. It would be interesting how they might act towards someone who has no qualms with such investment. (For example, tobacco or oil)
d) In some way you will be perceived as 'the vegetarian' or the 'holier than thou' when it comes to social justice issues. People naturally dismiss the ideals of these people because otherwise it would conflict with their sense of self.

I suspect you may need another approach to discussing these kinds of things with people. I am not sure what that is. Telling people what they do not want to hear rarely works out well. You could direct her towards a different non-exploitative investment such as commercial property. Chances are they really do not see any issue with this kind of investment. I see that argument as hopeless and a lost cause as it will be unlikely she can accept any of your points as true. (They will just be nonsense from her perspective as she has never suffered the consequences of them personally.) I see it as a bit of a tragedy of the commons. Everyone buying up houses to let them out then wonder why their children cannot afford houses. Then wondering why people all over the country are up to their eyeballs in debt.

No it was dirextend at AddToBasket, who said I didn't know what I was doing.

Asset allocation can be anything you like - whatever works. I have zero in residential property, but that hasn't stopped me growing it, and I find it very silly that a correlation between my opinions on residential property and my investment abilities can be made on very flimsy assumptions from a few things I've written on this thread.

Paramedicswift - thanks. A tragedy of the commons is a wonderful phrase for what's happening. 'Why don't I have grandchildren, what's going on? - hold on, my tenant is on the other line'. this conversation happens more than people want to believe.

No one like a Cassandra I guess!

Just about the worst thing anyone can do for the planet is breed of course so you might argue the most morally good thing anyone of us can do is be sterilised or kill ourselves at one extreme.

They might well not have grandchildren because they were a housewife and their daughters earn very little as they were modelled a sexist and low earning upbringing. The solution is of course to ensure women pick good careers. Just as it is morally good to read to and help your children and feed them well rather than neglecting them and putting your efforts into other children, it is morally good to favour your own children over those of others. That care for those whom you love is not a moral wrong. Now in the other corner is Jesus Christ who was more into loving your enemy , abandoning your family to find God etc. Same with hard line communists in China and other men and women trying to "make a better world" and in countless cults - they sacrifice their duty to their children to further another cause. I would say they are wrong. Investing in, loving and caring for your own family is good. Leaving a socialist state to provide whilst sitting around not doing much is not good.

I still don't really understand the argument against the provision of homes for those who have never been able to afford to buy or don't want to buy, by private landlords. I see it as a social good that London today is not like 40 years ago when there was just about no property to tend due to rent controls which made letting out property to tenants a fool's game of nil return.

pixienott, I would not be disheartened by the comments on this thread. Very frustrating I suspect - a lot of people will misunderstand your points because they think are you are saying something completely different.

DodgedAnAsbo - There is nothing dogmatic about the OP's views. They're in fact observant. It just takes willingness to notice.

a) House prices are high. So high that salary to house prices is many times the historical averages.
b) For house prices to remain high, demand has to be high and people have to keep buying houses. As housing is a necessity, housing is shelter and demand will always exist.
c) Housing represents a large capital asset for most people. So they need to borrow money.
d) People borrow more and more money and this produces house price inflation. An extra £10000 to beat another offer on the mortgage is shadowed by the sheer amount that people borrow so people do it to win the house.
e) Banks and estate agents are quite happy to lend more and more as it further increases their own profits. In 2000s when self certified mortgages were the rage, people could get mortgages for amounts far higher than they could realistically afford.
f) The amount that people borrow in a mortgage is distinct to the affordability in monthly repayments. So In 2007 we got to the point that where the large financial institutions in the USA and the UK were speculating that the capital values of the houses being lent against would rise.
g) The poorer you are, the more you have to borrow to buy a house. You are ultimately more leveraged. You could potentially afford the monthly repayments but only barely. Leverage is a lever, you can lever into profit or into incredible losses.
h) People are unable to keep up repayments.
i) Financial crisis. Government buys banks.

Now we are back to d above. We're encouraging and advocating BTL as an investment strategy where there are tax breaks. We even give benefit claimants money to pay rents.

We even have taxpayer backed loans for people to buy houses (Help to buy) which is a bit like Fannie Mae and Freddie Mac in the United States. Now we have Help to Buy ISAs.

It is a mess.

Unfortunately many people are benefiting and so are quite happy for this to continue. This is why many people dismiss the OPs views so easily. Never underestimate the blindness of greed.

AddToBasket, your response does not really counter any of the OPs arguments. You instead bring age into the discussion, question relationships, call her odd, rude and her ability to hold her tongue. What does this have to do with the facts? I do not understand your verdict of her being 'unpleasant and rude'. I feel that she has been very polite with spelling out her thoughts and the processes behind them. Not once has she resorted to name calling which is no way to conduct a discussion. The 'disproportionate anger' of private landlords is a real problem that cannot be ignored. Have you heard of the Tulip Mania?

Instill think its exploitive though ptolemy. Leveraging your capital in this manner is exploiting your position. imho.

Why? You aren't explaining this part if your position very well. You can have a valid issue with the lack of housing that has created a huge demand for property that the country can't keep up with, but you're not explaining why a landlord who rents to someone who wants to rent, using their own earned money is exploitative.

I've just double checked the meaning of the word exploit, google gives two meanings. One is to make full use and derive benefit from something, the other is to make use of a situation in a way that is considered unfair or underhand. I'm quite happy to be exploitative if we use the former meaning, but I suspect you are meaning that latter. But there is nothing unfair about a private arrangement between two individuals trading money for a service, and I still can't really understand your problem.

You seem to be coming from the assumption that everyone, as soon as they leave their parents home should be able to buy, and that there is never any good reason for someone to want to rent. But often people have good reason to want to rent, and they wouldn't be able to do that of there were no landlords.

Yes interest rates are about 2% on some mortgages and many of us have had to shell out 12% interest over the years so it certainly seems land of milk and honey for those able to come up with the 5% deposit under the right to buy scheme. prices are dropping in London at present and indeed buy to let does not make much economic sense in London as capital value are higher. Out of London the house my grandmother lived in costs £60k today (NE England). prices are not huge in many parts of the country not the tiny grotty starter properties many of us started with 30 years ago where we were prepared to slum it.

For the record I do not support market interference including bailing out banks, including housing benefit to anyone, including tax credits, free nursery places, help and right to buy and all these distortions of the market. I don't regard interest deduction though as a tax break - it is treating a property business consistently with any other business like my own when of course I am only taxed on profit I actually make not on my turnover. You cannot start taxing people on profits they have not made otherwise we become like Cyprus and confiscate 5% of everyone's savings etc.

'Why? You aren't explaining this part if your position very well. You can have a valid issue with the lack of housing that has created a huge demand for property that the country can't keep up with, but you're not explaining why a landlord who rents to someone who wants to rent, using their own earned money is exploitative. '

many borrow to let plans are like so

1. person buys house 20 years ago. (and maybe paid for a very short while double digit interest on mortgage)
2. person benefits from 400% + house price inflation, whilst salaries are comparatively stagnant.
3. person releases equity from hi and puts down deposit on new places throughout last 20 years and does it again and again.
4. more people follow this model, and we will get to social unrest over it within 10 years. I think.

Off shopping sorry.

You're going back to borrow to let again, which as I told you, is not what I have done. Yet you still say that my personal situation is being exploitative. So again, you're not explaining your position at all well.

Where am I, or other LLs in my position, being unfair or underhand?

Ptolemy i think you'rre being highly selective in what you choose to read and respond to, and deliberately pedantic. Yesterday you were patronising too of course.

Look in my firsy post i said there's a difference between borrowing and buting outright. i've clarified that from the off.

I've also said that buying in whatever way to rent now is a decision that even the most obstinate would have to consider the human effects of doing so. Young people are shafted. We've gone through this time and time again, so I'm not engaging with you any further.