gearoidmm said:Am I missing something here?
gearoidmm said:A number of threads on this site heve referred to people buying BTL properties as long-term investments with interest-only mortgages. In a significant number of these cases, the rental income does not cover the cost of the interest on the mortgage. When asked about the advisability of this, the response is invariably 'I'm in it for the long term -10-15 years'.
What I can't understand is how this could be a long-term investment. As far as I'm aware, interest only mortgages have to convert to regular repayment mortgages after a certain period. At that stage, the repayments would increase significantly and, given that the rental income is not covering the repayments now, it would imply that there would need to be a huge increase in rents in the next few years or else they would have to sell up and take the profit on capital gains. I can't see how this could be anything but a short-term investment.
Am I missing something here?
nt00deep said:I'm sorry but isn't the possibility of capital gains not an acceptable consideration in determining the investment risk. All of this waffle about keeping your analysis focused on rental income is really annoying. I am not saying the capital appreciation is going to do anything like it has done in the past, but to say it is essential to discount it from the equation is nonsense.
Determining risk (and therefore price) for share purchases is not confined to assessing the dividend levels. You assess the underlying asset performance in terms of ability to grow value, and any dividend that comes along is great. Neither of which are guaranteed, but the price / risk assessment should consider both.
The usual cautionary notes of course should apply, but why is one considered breaking the first rule of property investment if expected capital gain is considered part of the risk model.
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