Embarking in property investment from 2024. Do you still think it's still worth it?

[Citybrave]

First, apologies if this question has been asked before, or is posted regularly.

I wanted to get your views on someone who is considering a path towards building a UK property portfolio through a Ltd company in the coming years.

I'm 25 and have a strong interest in property, alongside currently working within the building sector as a Quantity Surveyor for a refurbishment contractor. Although I have an interest, and arguable an industry relevant career, the more I research I do into potential strategies, the more apprehension I have. Especially when you compare this with the alternative of investing in index funds, for example. Do you still consider property a worthwhile investment? And if so, what strategies are working for you?

From my initial anecdotal research, it seems property investment, particularly BTL, only works in an ultra-low interest rate environment. Especially now, due to tax purposes it being more economical for larger portfolios to be held under Ltd companies, where lenders charge higher rates (from what I’ve heard) comparative to individual investors. Ive seen people argue a BRRR strategy provides returns, is the yield/appreciation you may achieve through this method worth the larger risk compared to stocks and bonds? The only argument I can see in favour of property investment is the ability to leverage. However, I’m no expert in this sector. I have heard there’s stronger yields in converting commercial to residential, but don’t know much about this.

Or is everyone mainly investing on the basis of future capital growth, rather than income generation?

Would love to hear your insights!

[JohnW]

Can't one use leverage (borrow) to invest in stocks and bonds?

[Alaric]

Can't one use leverage (borrow) to invest in stocks and bonds?

You can, if you can find a lender. It's inherently higher default risk than property, as unlike property, stocks and bonds can and do become worthless.

[Charlottesquare]

Most profitable in my experience is buy commercial buildings and obtain planning for residential then sell to a housebuilder. (let A N Other take the build profit/risk through actually building)

We tended to get 5-10 multiples on initial purchase prices re these, however often no income through until planning process, lots of costs going out throughout planning process and given time taken risk of poor market conditions when ready to sell (quite a few flat etc sites currently up for sale for less than sold a few years ago)

Of course this is trickier these days as lots have already been done, supply of city properties is likely more limited, but at one time we were picking up whisky bonds, bottling plants etc and turning them after 3-4 years.( e.g. one cost £50k, costs another £70k, sold with planning for £1.5m- 34 flats)

So ideal- buy with possible commercial rental income to tide you through until resold.

Always have a plan B re use in case no change of use-so never pay too much on hope. (a good town planer/architect needed)

Know likelihood of getting planning, offer on sites that do not yet have planning (Churches etc often sell their properties as is) to get the uplift.

Have another income to live on (we had a large commercial and residential investment portfolio, that gave us our living costs/salaries, the planning gains were irregular but large profits.)

Right now there are quite a lot of smaller offices becoming available as office rental market is slow (working from home etc), do beware though that satisfying thermal and sound insulation etc requirements to convert to resi can be expensive/difficult on secondhand properties and everything with these tends to cost more than you first think (though as a QS you will already know this)

It is either that or just buy resi and hold for a long time . (But that is boring)

Whilst we are now all a bit long in the tooth for development (stamina of younger people needed to see through to profit), if you have energy, drive and can listen to professional advice, there is still money in buy/planning/sell.

And with development there is one very simple rule-NEVER run out of some ready cash to solve problems , so NEVER commit all at the outset- problems/costs do arrive and banks are fickle, more developers fail because of over extension than anything else.

[Mike4]

It is either that or just buy resi and hold for a long time . (But that is boring)

Works for me and has done for 25 years!

But to expand on it, there is no one single way that everyone on this board invests in property. Each person finds a niche within the niche that suits them. Mine is little one and two bed modern houses (flats are a BIG mistake OMHO), the sort I really understand well as they are generally well built and simple to maintain. Other people like town centre flats, others again buy wrecks and do them up to rent, or do them up to sell, or build single houses on infill plots. Student rentals is another niche - much higher yield and much more day-to-day grief, I supect - and LOADS of extra regs to comply with....

[Gerry557]

I think its been made much harder with new regulations and licences. Not to mention changes to tax and things like rent controls.

I would check out how much deposit you need to put down along the the rate. The deposit has been the sticking point for most. BTL tended to work because of inflation and leverage over time. Increasing the rents to gain a differential. Im assuming you wont need the money out straight away and it will be used for the next deposit.

Then the question becomes how you do actually get money out. Will more taxes be introduced, will rates be increased on CGT and dividends etc. You might have a while to plan. Unfortunately landlords and not seen in a great light currently. All this would currently put me off.

Still if you can get yourself into a starting point there are a lack of availability so should help with voids and help with rent increases unless it starts being regulated. Will the properties be local, will you do repairs or will agents and tradesmen need to be factored in.

Some ballpark facts and figures might help

[Mike4]

I think its been made much harder with new regulations and licences. Not to mention changes to tax and things like rent controls.

In particular the big thing that seems to have escaped the public gaze is the EXTRA 3% stamp duty payable on BTL purchases. Or any house purchase you make if you already own another house/flat/home.

Designed it appears, to specifically discourage investment in rentals which is one of the many reasons supply is so restricted and rents soaring.

(Edit to add ladt para.)

[bluedonkey]

Another niche which used to exist but not sure if it does anymore is buying a property with a sitting *rent controlled* tenant and waiting for their exit.

[Charlottesquare]

Another niche which used to exist but not sure if it does anymore is buying a property with a sitting *rent controlled* tenant and waiting for their exit.

We have one of these- out of the 61 flats we once owned it is the only one left, as someone (not me- predates my time ) made a big mistake years ago with her tenancy. On the plus point she is now over 70. The market seems to value at circa 2/3rds OMV. (Also the cheapest Edinburgh rent for a 2 bed flat, £455 per month)

[Lootman]

Another niche which used to exist but not sure if it does anymore is buying a property with a sitting *rent controlled* tenant and waiting for their exit.

That worked out well for me the one time I did it. After 2/3 years the tenant fell and broke his hip, after which he could no longer get up the stairs. So the council housed him somewhere else and I got my vacant possession.

But of course it could easily have gone the other way and he lives to be 105.

[SalvorHardin]

Another niche which used to exist but not sure if it does anymore is buying a property with a sitting *rent controlled* tenant and waiting for their exit.

For those of us with an interest in investing in property, but don't want the hassle of dealing with tenants, etc. one way to do this is shares in Mountview Estates.

Mountview is a public company, its shares are listed on the London Stock Exchange.

https://www.mountviewplc.co.uk

There may be other companies that do this, Mountview is the only one I know of as I've considered buying its shares in the past.

Give me shares in property companies any day, rather than the hassle of dealing with tenants, agents, regulators and HMRC.

IMHO private residential landlords are going to be absolutely hammered by a Labour government. Such as rent controls, disallowing even more costs from being offset against rent, making it much harder to evict all sorts of tenants (including serial non-payers and scumbags).

[monabri]

We own a mixture of commercial/residential.

Our experience over the last decade + is that

Income returns (ie "rent" from a flat) from residential only are low to moderate (4%) and taxed...! The gains we have made have been in the property prices.
If it wasn't for the Capital Gains it would be an easier life simply investing in Government Gilts . Capital Gains tax takes a nasty chunk of any gain and allowances have diminished.

Income return from commercial ( in this case Shops) generates a higher yield ( 7% or more) but the downside is the Capital Gain increase has not been as strong.

Overall..if I had my time again (!) I think I'd be interested in mixed use property.....shop on the ground floor, flat above. As we get older, we simply don't want the hassle of being landlords.

SalvorHardin expessed concern regarding a Labour government...I agree and I suspect they won't be landlord friendly.

[monabri]

Another niche which used to exist but not sure if it does anymore is buying a property with a sitting *rent controlled* tenant and waiting for their exit.

That worked out well for me the one time I did it. After 2/3 years the tenant fell and broke his hip, after which he could no longer get up the stairs. So the council housed him somewhere else and I got my vacant possession.

But of course it could easily have gone the other way and he lives to be 105.

We had such a tenant. He paid his rent on time from 2012 to move out in 2022 ( he was a sitting tenant of 20 yrs when we took over). He had ' problems ' ( of the mental variety - I won't elaborate!). We couldn't make him clean the flat and it became a s...hole ( literally, with 20 bags of cat crap being stored in the flat). Very very difficult to get through to him and his social worker was not helpful. Fortunately he decided to move out to sheltered accommodation...Thank God!

[Citybrave]

Thank you all for your replies. Has been very very interesting and useful to follow so far!

[GoSeigen]

We owned two residential properties outright in the UK in the 1990s to mid 2000s, since c2020 own a mixed commercial residential property abroad.

I sold the first UK properties because 1. owning property is like having kids -- they're expensive and require lots of looking after -- and 2. the average yield on property had dropped below gilt yield (>5%) and I'd much rather own gilts and watch the coupons roll in than have to do DIY or manage tenants. It also said something about the state of the capital markets as demonstrated shortly afterwards in 2008=9.

In the meantime we had the kids and focussed our energy on them and rented -- best decision I've ever made. Property really didn't perform In the South East at least from 2005 to now. The last rented house we stayed in sold recently for about 2.5%pa growth and maybe the same gross in rent. Less than gilts (returning 20-30% in several years) and certainly not the 25%pa that the "property is my pension" people had in mind.

In 2009-10 I switched a lot of our capital into bank debt which was yielding 10% plus. 4% paid the rent, the remainder was profit, and you may be aware that yields fell thereafter delivering capital gains too. Now property prices had dropped a bit but this is how I looked at the situation at that time: a landlord takes a 100% BTL mortgage and buys a property which he leases to me at 4%. He pays High Street Bank 5%pa on the mortgage and maintenance costs of 1%pa. He takes a cashflow loss of 2%pa. High Street Bank pays me 10%pa: its shareholders and bondholders took all the bank's (5-10)%pa lending-borrowing losses in advance in 2008/9. I keep the difference between 10% bond income and 4% rent. It was a no-brainer, basically live rent free on the generosity of landlords and banks -- and earn a nice income just invested in bonds/gilts.


I look at the UK resi market again now, mainly oop north, and it is still difficult to justify a purchase. Rental yields are still low, prices high. Something has to give, but what? Gilt yields have recently risen again to match rent yields, gilt holders having taken a big loss. Banks are probably around break-even on the subordinated debt/mortgage lending equation. So it seems to me that property holders are yet to take a bath. I don't know when that happens but I feel I have to wait patiently for the inevitable to happen.

The situation may be different in UK commercial property, I haven't looked. Instead in 2020 I did the thing that was fashionable back in the early 2000's: bought property abroad. In many foreign parts property holders have already taken their losses and yields are quite healthy. We managed to buy our property for close to (depressed) land value only so got three residential buildings and a medium size hospitality building, plus other utility buildings and amenities for free. We just closed on a residential letting at >20% yield on purchase price.

Of course overseas property is not everyone's cup of tea (though it was in 2003 obvs) but it may be something worth considering. There must be value in the Costas or Greece or Turkey right now? Maybe parts of France and Italy too. I don't know as I haven't looked but prices did fall quite heavily in some of those places, and they certainly aren't as sought after by dumb (UK) foreigners any more...

Anyway, if you find irresistible value in the UK property market please share on here as I and others are always interested. Whatever you decide good luck.



GS

[Mike4]

Thank you all for your replies. Has been very very interesting and useful to follow so far!

So what are you leaning towards so far?

The student market also separates. There are the scruffy old turn of the century terraces in the university town I used to live in, filled with students and badly maintained. Then there are the new landlords such as purchased next door to an acquaintance of mine who bought a large four bed terrace in a good residential road and spent £1m apparently, convering it into a massive top specifacation student let. Including adding a loft conversion and a whole new storey by digging out a basement conversion. Big communal areas and all beautifully presented and maintained. Wealthy students are falling over themselves to rent rooms in it at top money and then some. A refreshing change from most student accommodation and at a price to match.

[MyNameIsUrl]

I posted about my 10.2% XIRR annually over 20 years here: https://lemonfool.co.uk/viewtopic.php?f=8&t=41156

As others have said, leverage is a key component of btl success, and I don't know if you will be as fortunate as I was with interest rates.

In my post I also talk a bit about the work and responsibility involved.

Do you still consider property a worthwhile investment?

It was for me, but it isn't now for me. You can make up your own mind, and I think you're doing the right thing in asking around and getting various views.

[Lootman]

The student market also separates. There are the scruffy old turn of the century terraces in the university town I used to live in, filled with students and badly maintained. Then there are the new landlords such as purchased next door to an acquaintance of mine who bought a large four bed terrace in a good residential road and spent £1m apparently, converting it into a massive top specification student let. Including adding a loft conversion and a whole new storey by digging out a basement conversion. Big communal areas and all beautifully presented and maintained. Wealthy students are falling over themselves to rent rooms in it at top money and then some. A refreshing change from most student accommodation and at a price to match.

In Exeter for a while now almost every new building going up was for student housing. And in particular these were higher-spec student lodgings specifically geared towards Asian students, many of whom seem to have rich parents who don't care how much they spend on their kids being happy and comfortable.

Meanwhile the British students are living in those crappy old terraced houses on the cheap side of town.

I suspect the landlords of the former are doing better.

One other trend is towards short-term lets. No worry about pesky pro-tenant laws. No worry about long-term tenants whining about their precious "rights". No worry about not being able to raise the rent. One of my sons has converted his rental house into short-term business lets. Typically the lets are a week long and he gets 500 a week for each one. Occupancy rates are high.

[Charlottesquare]

The student market also separates. There are the scruffy old turn of the century terraces in the university town I used to live in, filled with students and badly maintained. Then there are the new landlords such as purchased next door to an acquaintance of mine who bought a large four bed terrace in a good residential road and spent £1m apparently, converting it into a massive top specification student let. Including adding a loft conversion and a whole new storey by digging out a basement conversion. Big communal areas and all beautifully presented and maintained. Wealthy students are falling over themselves to rent rooms in it at top money and then some. A refreshing change from most student accommodation and at a price to match.

In Exeter for a while now almost every new building going up was for student housing. And in particular these were higher-spec student lodgings specifically geared towards Asian students, many of whom seem to have rich parents who don't care how much they spend on their kids being happy and comfortable.

Meanwhile the British students are living in those crappy old terraced houses on the cheap side of town.

I suspect the landlords of the former are doing better.

One other trend is towards short-term lets. No worry about pesky pro-tenant laws. No worry about long-term tenants whining about their precious "rights". No worry about not being able to raise the rent. One of my sons has converted his rental house into short-term business lets. Typically the lets are a week long and he gets 500 a week for each one. Occupancy rates are high.

But regulation/licences, planning permission, fire control systems, anti social behaviour issues are the risk. Edinburgh is swamped with short term lets and Council seems at times at war with them. The catch is tourists who use them do not vote (locally), those they squeeze out of the property market (reduce numbers of properties sold or rented longer term) do.

Short term letting imho is no long term safe haven. (Latest move tourist taxes, there will be more, maybe sprinkler systems, secondary exits etc)

[Lootman]

In Exeter for a while now almost every new building going up was for student housing. And in particular these were higher-spec student lodgings specifically geared towards Asian students, many of whom seem to have rich parents who don't care how much they spend on their kids being happy and comfortable.

Meanwhile the British students are living in those crappy old terraced houses on the cheap side of town.

I suspect the landlords of the former are doing better.

One other trend is towards short-term lets. No worry about pesky pro-tenant laws. No worry about long-term tenants whining about their precious "rights". No worry about not being able to raise the rent. One of my sons has converted his rental house into short-term business lets. Typically the lets are a week long and he gets 500 a week for each one. Occupancy rates are high.

But regulation/licences, planning permission, fire control systems, anti social behaviour issues are the risk. Edinburgh is swamped with short term lets and Council seems at times at war with them. The catch is tourists who use them do not vote (locally), those they squeeze out of the property market (reduce numbers of properties sold or rented longer term) do.

Short term letting imho is no long term safe haven. (Latest move tourist taxes, there will be more, maybe sprinkler systems, secondary exits etc)

I think it varies by location. My other son runs a HMO in London and he gets swamped with regulatory demands from the LA there, some of which he complies with and some of which he just plain ignores because they are ridiculous. But in more suburban and rural areas, controls and LA micromanagement is a lot less.

And some locations are very opposed to Airbnb's, and seek to limit the use of such services to find short-term residents. Their argument is that it takes away long-term rental housing. But if I own a house and do not want to do long-term lets, often because of the very regulations that the LA has imposed, then I am not going to rent them out long-term come what may.

If I were still in the LL business I would be doing short-term lets only. But the way the tax and LL/TT rules are going it sometimes seems like the government wants to abolish all private provision of such housing services. Madness.