We are living in a different time where investors of buy-to-let is viewed as "evil landlords". Governments intend to control the rise of multiple home ownership so that prices can stay low enough for first time home buyers to jump on the ladder.
Going forward, commercial real estate, property development may be more profitable ventures.
Banks will still need to make a living lending money. It is their bread and butter, even more so ever since many central banks curb speculative activities of banks.
Banks also prefer secured loans, in order of financial assets first, real estate second. Financial assets are preferred over real estate because of the liquidity. However, the IRR for financial assets seldom surpass 10 - 15% because the loan to value ratio is usually no higher than 50%. If you are very good at investing in stocks and bonds, you can obtain 15 - 25% IRR. Anything higher will heighten the risk of margin call in bad times. For real estate it is easy to achieve 30 - 60% IRR, eyes closed. This is because 1) you can leverage up to 80% LTV without risking margin call, as long as you service your mortgages promptly. 2) you can add value to the property by making improvements such as an additional bathroom / room.
For stocks, you are a passive investor. You are hence like a surfer, riding on the wave with no control of where and when the wave goes.
However, there is another venture that can achieve over 60% IRR. It is to invest in companies in the Pre-IPO stage, developing the business and getting it ready for listing. I've known investors of Alibaba, and now Xiaomi, aiming for 100x return over 5 years. for example if you invested 100k in a venture, your stake can be worth over 10m in 5 years upon going IPO or through a reverse takeover (RTO). This represents an IRR of 151%! So there are ventures that are more attractive than property after all. It also doesn't require leverage so you are not at the mercy of banks. However, the risks are slightly higher.... About 25 - 50% of good businesses eventually fail. But if you hop on the right train, e.g. Xiaomi, Coassets (crowdfunding platform), Tripadviser, you will see your wealth grow in large multiples.
©Rex
Britain’s most renowned landlord never intended to own a thousand properties and plans to spend his retirement tending his lawn and writing more children’s books.
The former maths teachers became the public faces of the buy-to-let revolution, but Mr Wilson, 65, told FT Money this week that they did not start with designs on such a grand portfolio. If anything, they were the ultimate accidental landlords. “We had a house to sell and another to buy, and so I thought with a fair wind, I could keep both at the time and rent one out,” says Mr Wilson. “But it wasn’t until the 1990s that I really started to grow the portfolio, attending property auctions. With the recession, prices started coming down.”
“We used to collect them [houses] like stamp collectors,” Mr Wilson adds.
But in an era of tighter mortgage lending and suppressed yields, as rising capital values outstrip rental growth, would it even be possible for a landlord to build a similar empire today? “It will be far more difficult,” admits Mr Wilson. “But not impossible. Anyone with half a brain could do it.” (Given that residential property has become increasingly political, the future to real estate wealth could be in commercial properties).
However, he adds that his mathematical background certainly helped give him an edge; this is a man who used to lie in bed running through his 17 times tables. He also draws on maths and science to explain why he isn’t calling the top of the market, comparing the interplay between London and regional property markets to Archimedes’ principle. London is the proverbial overflowing bathtub, with displaced tenants and prospective homeowners spilling out all over the home counties. Satellite towns such as Ashford have benefited, especially because the town is on the high-speed HS1 rail link into the capital. “The market has not peaked, it will continue to rise,” he says. “Although Carney’s efforts will slow it down, I don’t expect it to fall.” (an acumen in maths and finance is important to be a successful investor).
So why sell now? Mr Wilson says he and his wife have wanted to exit the business for some time, but were unable to do so after the 2008 financial crisis caused a brief drop in house prices and a much bigger dip in transaction levels. “We battened down hatches,” Mr Wilson said. “From 2008 we didn’t sell any properties, and now we are looking to sell the whole portfolio.”
In terms of how the portfolio is positioned for sale, Mr Wilson said the loans amount to just under 60 per cent of the value of the properties. While he could not provide a specific yield, he noted his rental income for this year is around £12m. On sale of the portfolio, Mr Wilson expects to gain £200m before tax.
It has not all been plain sailing. The financial crisis didn’t just stop the couple selling the portfolio; it also caused cash flow problems for them and their tenants. By late 2008, the couple were left needing to finance around £350,000 a month in mortgage repayments at a time when many of their tenants were themselves getting into difficulties. (risks of buy to let). The Wilsons had factored in a maximum of 10 per cent of late payments in their cash flow planning, but in October 2008, nearly 40 per cent of tenants could not pay their rent.
The couple’s disputes with tenants have been well documented. This year, Mr Wilson sent 200 eviction notices to tenants on benefits. He has previously opined that eastern European migrants in work made better tenants than British citizens on benefits.
“What is the fix for those on benefits? Perhaps it is to get a job and come off benefits, and that will ensure a passport to being housed,” he wrote in an open letter this year. The Wilsons were thrown a lifeline in 2009, when the Bank of England cut its base rate to a 300-year low and their mortgage repayments fell with it. But that wasn’t the end of the mortgage issues. About half of their empire is mortgaged with Mortgage Express, once the buy-to-let arm of the Bradford & Bingley building society and now part of UK Asset Resolution, the state-owned vehicle set up to house the legacy business of B&B and Northern Rock.
There has been speculation that the Wilsons are being pressured to pay back the loans in the view the rising market makes the portfolio ripe for sale, especially ahead of any increase in interest rates.
Mr Wilson says Mortgage Express came to be so dominant through the firm acquiring the loan books of other lenders – the couple are exposed to 14 lenders in total – and maintains that it “can’t call in” his loans.
However, he acknowledged that the aim of UKAR is to wind down the company and repay taxpayers by “helping” borrowers repay their loans or remortgage with alternative providers.
Since nationalisation, the lender has “been unable to extend mortgage terms” for interest-only customers, which could lead to repossession if landlords do not repay the full amount by the agreed date.
But Mr Wilson maintains that it is the meteoric capital gains over the past five years that have enabled the couple to exit at this opportune point in the market. “We’ve never made money like we’ve made in the last five years,” he said. “God knows how much we’ve made daily on capital value.”
So what next for the former maths teachers? Mr Wilson says he will tend to the lawn in his large house south of Maidstone, which he has “neglected” for a good few decades, and will also continue to write children’s books; he is the co-author of a series of books about Larry the Liger, a cross between a lion and a tiger created by a mad professor at a private zoo.
Although he’ll be sad to retire, he concedes now is an opportune time, even if the market has further to run.
-------------------------------------------
Who will buy it?
Rental property is an area of growing interest for pensions funds and other institutional investors seeking assets that deliver stable returns over the long term, writes James Pickford. However, many are focused on large-scale developments in single locations, such as the 1,439 flats planned for rent at the Olympic Village in Stratford, east London, by developer Delancey and Qatari Diar, the property arm of the Qatari sovereign wealth fund.
Andrew Allen, head of global property research at Aberdeen Asset Management, said there may well be keen interest in the market in the Wilsons’ properties, but it was not the type of portfolio that major institutions had recently been focusing on. “I suspect the majority of preferences for wholesale investors is to go for single blocks rather than a disaggregated portfolio.”
He added that any buyer would also need to take “a pretty strong view” about the future direction of UK house prices. “They are going to need to be comfortable with it because the residential market in the UK doesn’t produce high income.”
Alex Greaves, residential fund manager at M&G Real Estate, said the offer would attract interest since portfolios on this scale seldom came on to the market. “One of the challenges of the sector is trying to find critical mass.”
Nonetheless, he said it would be “a surprise” if it went to an institutional buyer, because of the risks of geographical concentration and the fragmented management demands of the portfolio.
Going forward, commercial real estate, property development may be more profitable ventures.
Banks will still need to make a living lending money. It is their bread and butter, even more so ever since many central banks curb speculative activities of banks.
Banks also prefer secured loans, in order of financial assets first, real estate second. Financial assets are preferred over real estate because of the liquidity. However, the IRR for financial assets seldom surpass 10 - 15% because the loan to value ratio is usually no higher than 50%. If you are very good at investing in stocks and bonds, you can obtain 15 - 25% IRR. Anything higher will heighten the risk of margin call in bad times. For real estate it is easy to achieve 30 - 60% IRR, eyes closed. This is because 1) you can leverage up to 80% LTV without risking margin call, as long as you service your mortgages promptly. 2) you can add value to the property by making improvements such as an additional bathroom / room.
For stocks, you are a passive investor. You are hence like a surfer, riding on the wave with no control of where and when the wave goes.
However, there is another venture that can achieve over 60% IRR. It is to invest in companies in the Pre-IPO stage, developing the business and getting it ready for listing. I've known investors of Alibaba, and now Xiaomi, aiming for 100x return over 5 years. for example if you invested 100k in a venture, your stake can be worth over 10m in 5 years upon going IPO or through a reverse takeover (RTO). This represents an IRR of 151%! So there are ventures that are more attractive than property after all. It also doesn't require leverage so you are not at the mercy of banks. However, the risks are slightly higher.... About 25 - 50% of good businesses eventually fail. But if you hop on the right train, e.g. Xiaomi, Coassets (crowdfunding platform), Tripadviser, you will see your wealth grow in large multiples.
July 11, 2014 3:41 pm
©Rex
Property millionaires Judith and Fergus Wilson
Fergus Wilson and his wife Judith announced this week that they were looking to sell their entire portfolio of homes in and around Kent, having previously tried to do so during the financial crisis.
What really transformed things was the advent of buy-to-let mortgages in the mid-1990s. These provided cheap leverage for the Wilsons, who were easily able to acquire high loan-to-value, interest-only mortgages. “In early 2000, the main requirement for gaining a mortgage was the ability to sign your name – occasionally we ran out of ink,” Mr Wilson quipped. “It became a joke that mortgage providers gave you an upmarket pen. We had hundreds of them.”
As their properties started to appreciate in value, the Wilsons remortgaged again and again, drawing out equity and using it to buy more properties, mostly two and three-bed houses rather than flats. “We used to collect them [houses] like stamp collectors,” Mr Wilson adds.
But in an era of tighter mortgage lending and suppressed yields, as rising capital values outstrip rental growth, would it even be possible for a landlord to build a similar empire today? “It will be far more difficult,” admits Mr Wilson. “But not impossible. Anyone with half a brain could do it.” (Given that residential property has become increasingly political, the future to real estate wealth could be in commercial properties).
However, he adds that his mathematical background certainly helped give him an edge; this is a man who used to lie in bed running through his 17 times tables. He also draws on maths and science to explain why he isn’t calling the top of the market, comparing the interplay between London and regional property markets to Archimedes’ principle. London is the proverbial overflowing bathtub, with displaced tenants and prospective homeowners spilling out all over the home counties. Satellite towns such as Ashford have benefited, especially because the town is on the high-speed HS1 rail link into the capital. “The market has not peaked, it will continue to rise,” he says. “Although Carney’s efforts will slow it down, I don’t expect it to fall.” (an acumen in maths and finance is important to be a successful investor).
So why sell now? Mr Wilson says he and his wife have wanted to exit the business for some time, but were unable to do so after the 2008 financial crisis caused a brief drop in house prices and a much bigger dip in transaction levels. “We battened down hatches,” Mr Wilson said. “From 2008 we didn’t sell any properties, and now we are looking to sell the whole portfolio.”
The couple are halfway through a six-month process to sell the entire portfolio. So far, professional football players, overseas investors and British pension funds have expressed interest. While Mr Wilson is keen to sell to the highest bidder, he hopes the portfolio will be sold to an onshore investor.
He aims to sell the whole portfolio complete with the tenants, many of whom have resided in the two and three-bedroom houses for ten years or more. In terms of how the portfolio is positioned for sale, Mr Wilson said the loans amount to just under 60 per cent of the value of the properties. While he could not provide a specific yield, he noted his rental income for this year is around £12m. On sale of the portfolio, Mr Wilson expects to gain £200m before tax.
It has not all been plain sailing. The financial crisis didn’t just stop the couple selling the portfolio; it also caused cash flow problems for them and their tenants. By late 2008, the couple were left needing to finance around £350,000 a month in mortgage repayments at a time when many of their tenants were themselves getting into difficulties. (risks of buy to let). The Wilsons had factored in a maximum of 10 per cent of late payments in their cash flow planning, but in October 2008, nearly 40 per cent of tenants could not pay their rent.
The couple’s disputes with tenants have been well documented. This year, Mr Wilson sent 200 eviction notices to tenants on benefits. He has previously opined that eastern European migrants in work made better tenants than British citizens on benefits.
“What is the fix for those on benefits? Perhaps it is to get a job and come off benefits, and that will ensure a passport to being housed,” he wrote in an open letter this year. The Wilsons were thrown a lifeline in 2009, when the Bank of England cut its base rate to a 300-year low and their mortgage repayments fell with it. But that wasn’t the end of the mortgage issues. About half of their empire is mortgaged with Mortgage Express, once the buy-to-let arm of the Bradford & Bingley building society and now part of UK Asset Resolution, the state-owned vehicle set up to house the legacy business of B&B and Northern Rock.
There has been speculation that the Wilsons are being pressured to pay back the loans in the view the rising market makes the portfolio ripe for sale, especially ahead of any increase in interest rates.
Mr Wilson says Mortgage Express came to be so dominant through the firm acquiring the loan books of other lenders – the couple are exposed to 14 lenders in total – and maintains that it “can’t call in” his loans.
However, he acknowledged that the aim of UKAR is to wind down the company and repay taxpayers by “helping” borrowers repay their loans or remortgage with alternative providers.
Since nationalisation, the lender has “been unable to extend mortgage terms” for interest-only customers, which could lead to repossession if landlords do not repay the full amount by the agreed date.
But Mr Wilson maintains that it is the meteoric capital gains over the past five years that have enabled the couple to exit at this opportune point in the market. “We’ve never made money like we’ve made in the last five years,” he said. “God knows how much we’ve made daily on capital value.”
So what next for the former maths teachers? Mr Wilson says he will tend to the lawn in his large house south of Maidstone, which he has “neglected” for a good few decades, and will also continue to write children’s books; he is the co-author of a series of books about Larry the Liger, a cross between a lion and a tiger created by a mad professor at a private zoo.
Although he’ll be sad to retire, he concedes now is an opportune time, even if the market has further to run.
-------------------------------------------
Who will buy it?
Rental property is an area of growing interest for pensions funds and other institutional investors seeking assets that deliver stable returns over the long term, writes James Pickford. However, many are focused on large-scale developments in single locations, such as the 1,439 flats planned for rent at the Olympic Village in Stratford, east London, by developer Delancey and Qatari Diar, the property arm of the Qatari sovereign wealth fund.
Andrew Allen, head of global property research at Aberdeen Asset Management, said there may well be keen interest in the market in the Wilsons’ properties, but it was not the type of portfolio that major institutions had recently been focusing on. “I suspect the majority of preferences for wholesale investors is to go for single blocks rather than a disaggregated portfolio.”
He added that any buyer would also need to take “a pretty strong view” about the future direction of UK house prices. “They are going to need to be comfortable with it because the residential market in the UK doesn’t produce high income.”
Alex Greaves, residential fund manager at M&G Real Estate, said the offer would attract interest since portfolios on this scale seldom came on to the market. “One of the challenges of the sector is trying to find critical mass.”
Nonetheless, he said it would be “a surprise” if it went to an institutional buyer, because of the risks of geographical concentration and the fragmented management demands of the portfolio.
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