Is buy-to-let dead?

33:47You get this real intergenerational inequality where, because now you've got like a third of homes, I think in total are owned outright, so no mortgage. And so they're going to get passed on to kids at some point. So like, great for them. Not so great if you're not in that situation. Already, if you can get help from your parents with your deposit or whatever, that puts you in a position to buy and someone else isn't. So it's like, it just becomes more and more entrenched over time. And also because you've got all these people who benefited from this like weird blip when house prices went crazy for all these reasons we've gone through then now like politically they do not want to see house prices fall no government truly really wants to see house prices fall we are as a country far too i think over invested in property so much more so much lending goes to mortgages rather than anything productive but you're in this situation now and to get out of it is so politically and realistically painful i don't know how you do it i was about to say can we get out of it because if these people or the i guess um boomers are passing on their houses to their children those children might sell but realistically they might pass on to their children is this just how we are as a country forever or is there anything that can change it i don't know i do think that i do think we have to look at what happened in the like the 90s and 2000s as a as a a weird period so like the your price to earnings ratio went from, it doubled or did whatever it did.

35:12That doesn't mean it's going to keep happening. It doesn't mean houses are going to keep growing far above wages, inflation, anything else. I think that happened. It was for reasons. And those reasons aren't going to be repeated. So what we've seen now is over the last few years, house prices have got more affordable relative to incomes and everything else, because they've basically gone sideways when everything else has gone up. So I don't think it's going to get more and more extreme from here in terms of house price growth. I don't think we're going to see more crazy booms. But I don't know how you get from here back to there.

35:46And I don't know how you sort out the individual inequality piece. Yeah, because the political will is important, right? Because the biggest voters are the people with housing wealth and with state pensions. If you look at the activities that we protect, we protect pension purchasing power through the triple lock. We protect homeowners through, you know, not rolling out shit loads of homes to fix the supply issues or whatever, because they vote, you know. And what you do, as soon as you try to change anything, people get upset about it. Labour tried to get rid of the winter fuel allowance, which is kind of small fry in the scheme of things, the grand scheme of things, and they had to go back on it or water it down or do whatever they're doing.

36:25So imagine trying to change something massive, like we're talking about here. And the saddest thing is as well, the people that would be punished the most would be the people that just bought homes. so you know people had scrapped and scraped to get on the housing ladder would fall into negative equity if there was a big sharp correction in house prices because it's always the people who just bought right the people who've got all this equity that oh it was worth half a million now it's worth 400 grand bad but you know exactly which is why people i think people think they want to crash but they don't really want to crash because like you say it's the people who are the most who are in the most vulnerable situation because the stage they're at who get hit the most and everyone else go great i can buy now i know i can't there's no lending do you think that what we're seeing, say, in London markets and the stagnation of prices is the ideal outcome then, where we have a hopefully long-term wages increase and we just see property prices not really go crazy.

37:14And that's the happy medium where people feel like they haven't lost money, even though they have. Yeah, we've been calling it the silent property crash, because over the last few years, you have had property prices going up very slightly in nominal terms, but falling relative to everything else. So house prices in real terms are down like 15-16 % from their peak. But it's happened without any real pain. So it's like, great, if we could just have more of that. I think what we'll do, and I love giving jobs to the editor, Ben, who sat over there, we'll put on screen the house price crash chart so that we can explain that because I think people find it really hard to wrap their heads around.

37:47They go, house prices haven't crashed. But if you were just for inflation, you can see that the house prices are lower than they were a few years ago, basically in real terms, even though the nominal price has gone up. Yeah, and in RPI terms, they're the same as they were in 2013. in 2003. So that's Nationwide. What's RPIT? It's Retail Price Index. So that's a measure of inflation. So there are two measures of inflation, and that's kind of discredited now. But if you use that one, which is what Nationwide uses, they show that if you adjust for their definition of inflation, then the amount that you're paying for your house on average today is the same as it was 20 years ago.

38:26It just doesn't feel like that because the number looks really big. These days, people use CPI, which people think is a better measure. It's a bit more flattering for the people who use it to uprate things. If you use that, then I think prices are up like 20 % over 20 years, but it's still not much. It's less than people think in real terms. So yeah, I think that's a point that people find hard to grasp. I think if people understand and people do understand that if they leave money in a bank account, it can go up by one or 2 % a year. But if inflation is higher than that, they're losing money.

38:58So with your house, you've not got it in a bank account, you've just got it in bricks. It's a savings account where it's bricks. Imagine they're gold bricks, basically. And that's all that's happening now, isn't it? The inflation is eroding the purchasing power of the money that you've got sat in the bricks. Even if it's growing slightly, and the high period of inflation that we had, we didn't see house prices go up in line with that. And also if wages increase, because they get dragged up by the pressures that inflation causes, people demand more money, the argument is housing affordability could improve but yeah this is like a 10-year kind of like it's not like a quick fix it's not no one's going to come along and go there's the housing market sold today no it's a good i think the best we can hope for is just a gradual continuation of the trend that we've had for the last couple of years which isn't amazing but it's probably as good as you're going to get and it doesn't cause any significant pain there's still there is still the economics of it still work for people who want to invest but things get better for those who want to buy if you get more supply that's helpful but it doesn't completely solve the problem like we've seen i think regionally as well you need to so what i've noticed as someone who comes from up north is the stagnation of the london market is making capital leave london and go up north and that's pushing prices up a lot up north so where i bought my place uh in wigan the prices have gone up crazy amounts in a short amount of time you're talking like 10 over the period i purchased it and it's because people are flooding like the money's leaving the south and a lot of it you know is people that are like i can never buy a home where i live i'm going to buy one up north to subsidize my rent down south yeah it's like proxy ownership you know it's not they're not like a landlord per se but they are to supplement the fact that they can't afford to live where they want to live yeah exactly and so we have like you like this is i think they've all stolen my idea from like one of our first episodes i was like i want to buy up north i can't remember who he had on he's like do you want to live up north i'm like no but it's cheaper so i want to buy up north yeah so yeah i think it makes sense because when you see how much money you have to type in london it's crazy yeah so when we talk about stagnation and we relate to the south that can be detrimental to the barriers up north where it has been affordable for people potentially manchester now has become out of reach for a lot of people because investors flock to it yeah northwest is the fastest growing region of the uk for prices and rents and it's projected to be for the next five years at least as well It's because London, the South East, has kind of hit this ceiling now.

41:19And so, yeah, the money's going to go somewhere else. So it's not fair to say that prices everywhere stagnate. It's very much regional, local markets, right? Yeah, at the moment, I've never seen such a stark regional picture. It's like, if you're buying for... It used to be the case that you'd think you'd get your capital growth in the South, but you'd get your yield up North. You'd be able to, because you're paying less for the property, the rents are less, but comparatively less so. So you'd make more of a rental return in the north, but your capital return in the south. Now it's best in the north for both of those.

41:52So as an investor, you're going to go there. It's just best in the north. We're going to move on to is property investment still viable? And I think a good way into that is there's a lot of institutional noise at the minute. So you go on like property Instagram and there's a guy and he's got like piano music and he's like BlackRock are buying everything. Or Blackstone announced that they're going to invest a billion. It almost seems like conspiratorial or that people are marking it as the end of days that lawyers are going, we're going to buy everybody's house. Is that a trend that's real? Is that what we're seeing?

42:24And why are they doing that? It's a real trend. It's a trend from a low base. So I think it's like 2 % of rental properties are institutionally owned in the UK at the moment. So it's really low. So it's growing, but from a low base. why are they doing it because um i think it's because they've realized that residential has done so well relatively over the covid period like commercial has become a lot less attractive offices obviously haven't have not fed so well so you've got money coming out of that i think the reason that people have always been the institutions have always been anti-residential is like it seems like compared to having like a big shopping center where you can put 100 million in and you've got one effectively unit to manage having loads and loads of individual houses or flats seems like a pain a lot of admin yeah so they so they didn't do so and then when they first came into property it was like building blocks and so like yeah okay we've got loads of units but at least they're all in one block and now it's that the biggest growth area for institutions is suburban like individual um family homes so i think they've got their heads around that they're actually this works pretty well compared to the alternative and you've got this kind of inflation linked income attached to it because rents tend to go up in line with earnings which tend to go up in line with inflation so that's why they've they've done it i think i don't think that's a bad thing because i think like mostly they are joint venturing with developers to get these built and so and so they're not coming along and just like outbidding if everyone like everything on right move so they maybe that stock wouldn't get built if they're creating new homes yeah it's called build to rent right and they're building to rent whole housing estates is what you're saying yes so like the new build housing estates yeah so they they might take the whole thing they might take just some of it you see different models for making it work but they i think there's an argument that that's contributing to supply and it's contributing to choice so like and i think it means that individual landlords have to raise their game because the standards are higher you see it's more it is more professional it's more professionalized there are standards so like if you look at a lot of the not all because again it depends and it can be done well or badly but if you look a lot of the of the new stuff um the new houses and been inside some of the new blocks they're really well run it's like it's far more modernized it's more convenient because well they are open to they're open to longer term tenancies they want longer term tenancies because it's good for them tenant turnover is a massive hassle so that's great they tend to have um they tend to have like bills included and your wi-fi and all the rest of it so it's far more convenient and there's like there's a level of professionalism and there's a level of recourse like if something doesn't go as it should so you feel like you can like start hitting up the ceo on twitter or something about it whereas if it's an individual landlord it's much it's like i'm on holiday i'll get back to you in a month yeah exactly one thing i think people will say is the quality of new build seems pretty poor uh you know these a lot of these estates they seem to have a lot of snagging issues and people are trapped in those as well you know like yeah i don't know i think some of the worst of it has been sorted out.

45:26Having leasehold houses, which is more of a thing in the Northwest than elsewhere for some reason. I don't know why. That's been outlawed now because that just never made any sense. It was just another way to make money. A lot of the, I don't know, new builds, again, I'm not here to represent the mainstream builders, but I don't think, I think it's overdone. I think the problems with it are overdone. I think generally because building standards in general, materials and everything else have got so much better. I think new builds are for the most part pretty good um if you buy if you buy an old house it's got a lot more character but it's also got a lot more wrong with it and because parts of it are going to be 50 100 years old and all of it is old to different degrees and so there's always something coming up that needs doing so yeah there's always there's always room for more there's always room for things to be done better and higher standards but I don't think it's that bad as an investor would you buy new builds yeah yeah so you you know you put your money away mouth is you'd much rather buy a new build like brand spanking you or like 10 years old so i that's sort of the range for me so like anything built in the last 10 15 years i'm happy with it can be brand brand new or it can but as long as it's modern because as an investor you want to you want to have certainty over your costs as close as you can so you don't want something that is just like there's always something falling apart we had heavy rain on our road like a few months ago literally half the half the roofs in the road they either leaked one fell in and then the rest just we had i was joking no we had it was like a flood just cut streaming things they're all old houses yeah west london nice area but like all the houses have been there for ages so yeah like roofs were getting done like everyone everyone everyone all the neighbors come out it's your roof yeah me too on the little whatsapp group yep ceilings just come in so yeah are most of the people on your road tenants about 50 50 50 50 yeah because like it's one of those areas where people have taken big houses and chop them into flats.

47:18Exactly, yeah. There's a lot of that in London. We see that in Manchester now in areas like Cholton. Yeah. My house is converted into three flats. It's a big... We've got two floors, but it's a big house converted into three flats. Yeah, yeah. So I didn't know if it was a high propensity of tenants, but you say about 50-50. Yeah. And you've got a community spirit? Yeah, we've got a WhatsApp group. Everyone talks. It's a lovely place to live. Everyone's got loads of kids. And yeah, that's why I think we have more respect for our road because we all like each other. So if you have an institution building a building, I think like...

47:45because we all feel like we're going to be, no one's in and out. People stay on our road for a couple of years where they buy. So we all have community spirit. No one litters. Everyone's like, there's some crackhead on the road. Like, watch your cars. So like, we all communicate. Oh no, it's just tea. It's just tea and day roll on the night out. Stumbling back to tea's house. Yeah, so yeah, I think you do get the community spirit if you're there for a long time. At night, Christmas time, we all put up lights on the street. I don't, but the neighbours, I just enjoy them, but the neighbours all put up lights on the street and like, there's a real community spirit.

48:13So if you're there for a long time, I think you guys get that. Yeah, agree. Care about the area. So is it the Renters Reform Act or Bill? I can never remember which way I ran it, so they renamed it. Renters Reform. Renters Rights? Which one is it? Basically, it's this big bill or act that's moved through two governments. So it was started by the Conservatives and then the Labour kind of picked it up or were like, well, we've got to do this. Could you summarise what you think some of the key points of that are? And then can we have a talk about if this is good for tenants, landlords? So I think the biggest one, there's loads in there.

48:41the biggest one is tenancies move from being like for a fixed term to being indefinite from the start so now you'll either go in and you'll do normally a six month or a 12 month tenancy sometimes longer but that's the norm um but now it's going to be like there's none of that so you're going to move in and it'll run until you don't want it to anymore so as the tenant you can move out with two months notice i think it is um as a landlord you can only ask the tenant to move out if they have done something wrong they've so they've stopped paying the rent anti-social behavior or you want to sell it or you want to move back in those are the only reasons so the people talk about no fault evictions section 21 you're also referred to so basically the way the way it is now at the end of that 12 month term not within it but at the end of that 12 months you could just say t sorry you got to go and you haven't done anything wrong but i just want you to go for whatever reason so that's not going to be a thing anymore so there has there has to be a valid reason for it ending.

49:40So that's the most significant thing that's in there. And if they have the valeries and you stood, the landlord still has to take them to court. Sorry? Do they still have to take them to court, the landlord? This is it. Yeah, like with the new rules. Do tenants have the impetus and the means to actually take people to court? And is the court system geared up for that? It's a lot to take someone to court. It costs thousands of pounds, and you're a tenant who hasn't got loads of money, and your landlord's like, get out. You're probably like... Well, I don't know how that would work, but at that point you could go to the local authority and there'd be some kind of enforcement.

50:12So you can't just as a landlord go in and boot someone out. I'm sure it does happen, but you can't do it. Therefore, you should be able to go to the police, go to the local authority, go to someone because you just can't do that. I think landlords would argue, I'm not saying that didn't happen. Obviously, that kind of thing does happen and shouldn't happen. But I think landlords would say that it's under their argument with the new system, and even the current system, is actually like, yes, you get landlords playing the system, but you get a minority of tenants playing the system as well. So it takes about nine months at least to evict someone who's not paying the rent, for example, by the time you go through the whole process.

50:52So I think a lot of landlords would say, well, hang on a minute, why should I have to bear that? So the courts need to protect. The point of the court system is to protect against the minorities of bad actors on each side, right? In the middle, everyone just kind of does their thing. And if there was no law, it would be fine. Everyone would figure it out among themselves. So you need to protect yourself against the extremes. And so that's why I think this change that is happening is a positive one, because I think renting should be more secure and should be longer term. The argument that landlords have, which I agree with, is that the court system is not geared up for it.

51:29And so like much as you should be allowed to stay in your home for as long as you want, as long as you're holding up your side of the bargain, there should be enforcement on the other side as well. So if you're not paying, then you can't stay there anymore. But the thing is that I think people getting very upset about this change because it is removing this no-fault route. Because what happens at the moment is if you've got someone who say they stopped paying nine months into a one-year tenancy, it's quicker and easier to just wait to the end of the 12 months and then say no fault, because trying to go down the other route, which will prove that they haven't paid, takes forever and it's really hard and there's lots of ways to work it.

52:03So people are getting upset because that way, the relatively quicker way, is going away. But even the relatively quicker way is not quick even now, because the courts are so overloaded and it just takes ages and the bailiff system is overloaded as well so i think the argument is when you change it so everything effectively has to go to court because there is no no fault so under this circumstance if you stop paying your rent you always have to go to court that means that the courts are going to get even more overloaded which means it's going to take even longer so on the landlord side you could then be sitting there for 18 months two years and they're not paying rent the whole time yeah so this really heavily favors the renters and it screws the landlords well i don't i i think the law is about right but it's about the enforcement of the law they can't they can't yeah they can't back it up yeah you know they can't do the process that they need to do it should be quick it should be a couple of months you know yeah do you you have a lot of experience across a lot of units with your clients and all of the properties that you manage for them what percentage of people stop paying rent like how big a problem is it for landlords it varies a lot because again we we deliberately target the type of property where we can be the most choosy and have people who are massive massive generalization people are going to be the most secure financially so it's it's very very low i think people again people perceive that it's this massive issue because when you hear about it it sounds so bad but actually it very rarely happens i've only had one like situation ever where someone's just like in my portfolio where someone's just stopped paying a lot.

53:36Good luck, get me out. It doesn't happen often, but there'll be sectors where you see it a lot more because people are more likely to fall into situations where they can't pay. And so the rational thing for them to do is to stay put, especially because local authorities won't rehouse them until they get literally kicked out. So it's not blaming them for doing it. It's the rational thing to do. It doesn't seem fair for the landlord. Like, are you not concerned? Obviously, like you said, you've got great tenants but does it not give you a little bit of caution like wow if someone fell upon hard times they could just i couldn't get them out for there's certainly maybe two years yeah it certainly means there's more risk i think people underestimate the risk now because like i say it could still easily take you a year so if you if you own one property and you're relying on that it could ruin you yeah exactly so i think people underestimate that now i think it could easily get worse i'd like i say the system's better if you invested in the courts no problem better for everyone.

54:30But in the absence of that, I think it could get worse. So I think it just does mean that if you are getting into property as an investment, I think you need to do it seriously as an investment, which involves having contingency funds, ideally getting to a point where you've got some kind of scale. So if you've got a few properties, then at least 100 % of your income doesn't get wiped out if one person stops paying. Yeah, especially if you're an accidental landlord and you know you're just quote unquote normal people and you've moved into a house and you've got one flat left you're like oh we'll rent it out and then that becomes like this big ball around your neck financially yeah i said i just don't even think that works anymore just like the whole like having one property that you used to live in and now you're renting it out or you've inherited and you're holding on to it because you especially because of the tax situation individual owners now get taxed far more heavily than people who own properties within companies so if it's your own home you used to live in you'll obviously own it as an individual which means that if you just what it used to be the case like in our property ladder days that people would like do it like great i'll have this extra home i'll make an extra 300 pound a month in profit that'll subsidize my holidays or whatever all good that just doesn't work anymore so let's talk about the investment then because i think people would listen to that and go people don't have to pay rent for two years taxation's gone up across the way 50 all over the board 50 % of the UK hate me why why should why would anyone be a landlord you know like so can we talk about the the positives and the market as you see it and the people who should and shouldn't do this definitely um go on so I think the the biggest positive for doing it is actually nothing to do with property and everything to do with mortgages and leverage because if you if you buy a if you buy a property with cash the return that you'll get on it is probably going to be similar to you'd get in like a sort of a diversified stock market investment probably but with a lot more risk and a lot more hassle and the tax situation is far worse so why do you do that but if you if you borrow money and so then you're benefiting from appreciation in the asset over time relative to what you borrowed.

56:43So roughly speaking, if you buy a£300 ,000 property, you might need to put in£100 ,000 to do that by the time you've got your 25 % deposit plus your stamp duty with the stamp duty surcharge and all your other costs. So you put in£100 ,000 and the bank puts in£200 ,000. Then if property goes up for a decade by 3 % a year, which I don't think is like a wild assumption, it's kind of roughly in line with what you'd expect inflation to be, then after 10 years your property has gone from 300 ,000 to 400 ,000 but your debt is the same as it was on day one so all so you basically benefited you doubled your money you've got your equity gone from 100 to 200 so you benefited from 100 % of the property price growth while putting in only a third of the money effectively so because of that that just means it just makes it so compelling because it's just like it's unfair compared to other investments because for property, you can borrow large amounts of money with relative predictability.

57:41Property prices aren't volatile in the same way that stock investments are, which is why you don't generally borrow money to buy stocks if you're an individual investor. You don't get margin called as easily with a property, do you? Exactly. You would do on a stock portfolio. Yeah. So it just means, so in that example, with property prices going up 3 % a year, after a year, you've made effectively a 9 % return on your money because you've only put in a third of the cash. So you've got to get three times the three. So you've made 9 % plus whatever you get from the rent. So then that continues every year just because of inflation.

58:11So we're not talking about house prices doing anything other than the same as everything else, which is just going up in line with inflation. And we've also got, you've got your rent going up in line with inflation over time. And yeah, your costs will as well, but your mortgage won't. And that's the key, because you're harnessing this, the ability to borrow money and you're harnessing inflation, which is like the most inevitable thing there possibly is there has to be inflation the system would collapse if you ended up with the opposite of that so you get to take advantage of that yeah so the reason i started buying property but i've i've got a lot of equity like most 90 % of my net worth is is in the stock market but you know if you think that we're entering a period of potentially higher inflation it makes sense to have debt yeah and you know property debt is is what i would consider the lowest risk debt because as long as you pay in the mortgages they don't come knocking, you know?

59:01Whereas with the stock market, if it dips below a certain value, they'll be like, you've got to put more money in or we're selling it, you know? And they don't have that live pricing element in housing. Exactly. So yeah, it is attractive. And it's also, it's that feature that you've described there, which has allowed landlords to become so wealthy, especially at zero rates, right? When the mortgages were dirt cheap. Yeah. Homeowners as well, to be fair. I mean, they can, home owners can use more leverage because you can borrow 90 % or more. Yeah, yeah. So yeah, if it's gone up by£10 ,000 and you've only put 10 % in, you've doubled your money at that point.

59:33Do you think then that the long-term trend of house prices increasing in line with inflation is one that people can be certain will continue to happen? You can never be certain, but I think it's highly likely because why wouldn't it? So I do think the property price is going way above inflation increases. That was particular to a particular time, a particular set of circumstances. I don't see that happening again. but why would prices go up by less than inflation like you see it with like electronics and stuff because they get cheaper to make and all the rest of it none of that applies to property so you you don't tend to get anything deflating so the only thing that could cause it to happen is if you had either an insane increase in supply or reduction in demand which is unlikely based on everything we've talked about or if something extreme is done to sort of limit lending which i think is the only factor that would bring about a substantial decrease in prices.

1:00:29So I think it's obviously very much depends on where you buy, because you've said how the Northwest is doing well in terms of growth. London is stagnated. But as a UK average, it's hard for me to imagine why prices over the long run on average wouldn't keep up with inflation. Even in a stagnant market, then through this position of borrowing, you might, you know, like a relatively flat market, it doesn't need to be ripping at 10 % a year, which I think is what a lot of people, a lot of investors have chased. I think it's counterintuitive, isn't it? Because it's the opposite logic of home ownership where people's desire is to pay off the asset so that they own it.

1:01:06Whereas what you're saying is, never pay off the loan. You know, like maybe one day when you're like 60 and you're like, screw this, I'm just going to consolidate down my portfolio and own 10 units that are paid off or one or whatever. But you're never trying to repay that loan. No, it effectively repays itself over time because it just falls relative to the asset value, relative to the rent, relative to whatever income you're bringing in. So it pays itself down unless you want to then lever up, borrow more and go again. You're weaponizing inflation for your benefit, right? I think in the modern world, people know that this is a force that's probably not going away.

1:01:40And by borrowing, the inflation benefits the borrower. Massively. Because it decreases the value of the debt. So it's a strategy that allows you to kind of get inflation on your side a bit. Whereas everywhere else we're kind of... You're aligning yourself with the government. The government is the biggest government. Keep printing. Quadrant music, let's go, baby. On the flip side, I was at Princess Dinah, Princess Memorial Garden on the weekend with all my friends. We've got, not all my friends, you weren't there. We've got like a dad's group on WhatsApp for all my mates who've had kids. So once you've got a kid, you get to join the group.

1:02:13and they were saying like a lot of people said the time and effort and the additional costs unexpected costs that you have to put into property are crazy and that's what's surprising the most so what are some of the like um costs and drains on time that you get by getting into a buy to let i think there's there's so much of it which is why i think you need to be probably getting to some level of scale for it to be worthwhile because like the the regulation is far more than it used to be. It's not a bad thing, but it's true. And so I think you need to educate yourself so much before you even start.

1:02:47Because not only is it quite a complicated thing, but also if you're buying one, you're taking everything and putting it into one property. So you better get it right. So there's a lot of pressure there. And then once you're an owner, you've got all the obvious costs of like, you've got your repairs, you might have a service charge, you might have if it's not something catastrophic there's something and you need to be able to deal with it so i would definitely not go into it lightly because there's always going to be and that's why i prefer to buy newer stuff because there's less that can go wrong because you want to know you don't want to suddenly have to replace the roof out of nowhere because that would be a disaster and you don't want the hassle of having to do that if you could choose it you want to get as close to your kind of as close to your passive index fund investment as you can it'll never be anywhere near it just because of the way it is but you want to get as close to that as you can while still obviously keeping it up providing a good service all the rest of it and cost of like i'm not handy i'm not a diy person and i envy the people that are but the cost of repair and maintenance and even like getting people to decorate has shot up massively we were getting quotes for a thousand pound just to strip the wallpaper like a couple of days work and so i think people underestimate that they probably have you need to have a real good understanding of what the cost in modern times are for doing things yeah because for what we would consider like a light to bring it up to standard where it's nice we you know redid the kitchen doors and replaced the work talks it was all 15 years old painted the whole place tidied up the garden it was 10 grand yeah you know you want to you want to bring it up to a really nice standard so the family that move in have a nice home yeah i don't want to be scrimping and scraping on day one no there's a couple of things that help with that so one is that i think is an argument for buying more expensive properties because the costs aren't exactly the same so like getting someone to come around and tweak something with your boiler it's going to be roughly the same price regardless of the value of your house and the rent that you're charging so it pushes you that way and also but also it really helps to have a long-term perspective yeah so like the everything i talked about with leverage that doesn't play out over a year that plays over 10 20 30 years and so if you're but if you're in the game for that long that's what you're looking at it for and you're looking at your total return over that time where a lot of it is going to come from this just pure inflation effect then you're not going to be so bothered about having these extra costs here and there because like yes you need to make sure that you're not losing so much you're not losing money you're not putting yourself in in jeopardy as a result of having all these unexpected costs but it's like it happens to me now like i've got somebody who looks looks after mine going whatsapps all the time we're like we're are you paying 200 pounds for this paying 100 pounds for that and i was like yeah because it needs to be done there's no point cutting the corner and over the entirety of the investment it doesn't matter yeah yeah and i you know i want to signal to my tenant that we will do stuff straight away come to me with the problem because i think one of the biggest issues when i was a tenant as well like i would feel scared to tell the landlord yeah like i was being a hassle yeah whereas actually that just leads to bigger problems so you want to signal we will get it done just tell us you know get it done straight away because it's your investment isn't it you want to protect it yeah go on mate would you say buy to let's change then it's not would you say it's instead of being dead it's changed so people might have in the past been like oh i'm looking forward to my 300 500 quid a month that's going to be great but now you've got to be like forget i might be losing money every month i might just be breaking even or i might just make a little bit but it's the long-term view now hugely yeah i think and the the income side is an important one as well because of the tax difference that we talked about earlier, which started coming in in about 2016, 17.

1:06:29Because of that, it means that it's far more tax efficient to own as a company, for most people, to own as a company and just let the money roll up in that company rather than taking it out personally. Because if you want to get the money personally as an individual, the tax is just, if you've got another source of income, the tax is brutal. So having it as like, oh, I'm going to make a little bit of money extra every month, maybe you do make a bit of money extra every month, but you can't spend it. You can't take it out to do anything with it or the tax is horrendous. So it encourages this, own it within a company, have a long-term perspective, have a few, ideally.

1:07:05How many? I think you want to have the aspiration, not straight away, to get to three or four, just to make it worthwhile. Like an economy of scale in terms of management and risk if a tenant doesn't pay. Yeah, it makes all the upfront effort worthwhile because you should be doing way more research with property than you would do with anything else. It makes all the hassle of just dealing with it more worthwhile. You can, yeah, it spreads your risk a little bit. And it means if you start getting up to that kind of level, you can start having some systems in place to make it a bit easier. Yeah.

1:07:36So I work with a guy that works for a large company and he says, you know, my attitude of, oh, I just want to buy a good unit. I want it to look nice. I want to rent it out i'm not bothered about like you know sweating this thing massively i'll charge below market rent so i can get a good tenant he says a lot of people are coming and going i got 50 grand and i need to retire today i need to like recycle the money pull it out no money in and he's like that just leads to like really bad outcomes in terms of for the tenants and and for them whereas if you have people that have like a 20 year view like an index fund view which i think is where my view comes from that leads to better outcomes for the tenant for the person buying more realistic yeah i think property is spectacularly ill-suited to making money in the short term because you can do it like you can buy somewhere and flip it and take your money out and do it again or whatever but it's so much work it's so hard you need so much you're tying up so much cash and taking on so much risk doing that compared to other ways of getting the same kind of return but that's what social media pushes on people isn't it that kind of like brrrr or whatever no money down rent to Yeah, what's the fifth army?

1:08:45You know, they're telling me I don't need a deposit for a house. I'm like, what do you mean? It's rubbish. Yeah, it's rubbish. You don't have money for deposit. Don't worry, I'll come join my course and I'll get you on the ladder. And I'm like, what? Yeah, it's a perfect confluence of get rich quick and people are naturally attracted to property. So you put it together. Perfect storm. You can make money. It's just like Forex trading and investing, right? It's the exact same mentality of like, I can show you how to do this with no money and get really rich really quick. yeah so it's it's but for some reason people latch on to that and think that that's the majority and is it possible yeah do people do it yeah some do but most don't and it's like if it's far more i think there's so many better ways to make money in the short term than property but then for somewhere to store money and compound it over the long term because of this inflation effect and the leverage aspect i think it makes property amazing for that so what we see our clients tend to be business owners high earners people who've like who who are generating the cash somewhere else and then they're putting it into property going like well great because i can see this over 20 years this is going to do super well for me compared as maybe they invest in other things as well maybe they don't but that's completely different from somebody's going to come in and go like right i want to retire next year or like i want to replace my job it's something you hit so often i've had rich dad poor dad and now i know i need to buy all the assets in the world I got five grand.

1:10:06Yeah, it's just so you can do it, but it's so hard. So, okay, let's talk. You mentioned now about research and the depth of research people need to do. That can feel quite overwhelming. Have you got any tips or like ways that people can do that more effectively? Well, we can put together like a page of resources, maybe you can link or something because we've got a calculator, a spreadsheet that will help you calculate your returns. And we've got like hundreds or probably thousands now of podcasts and YouTube episodes. So basically all the information is out there. It's all free. It's just finding your way to the right bits at the right time and putting yourself on this self-education course and basically discounting all the hype stuff straight away and definitely not paying to go on a course for any of this stuff.

1:10:54But just like the information is all there, but you have to invest the time to learn what you need to learn, both on the investment side, but also the legislation side. Even if you're using a letting agent, you need to know what they're meant to be doing so you can see if they're doing it. And so there's a lot. I haven't really answered your question. You'll give us a link. So I'll give you a link. That's great. That kind of curates some of the best bits. Yeah, exactly. That'll get you started. I use your spreadsheet calculator thing. So can you put that there? Yeah, definitely. Because I think if you'd have answered that in one sentence, I'd have been worried.

1:11:29if you'd have gone well just do this you know yeah if it multiplies by five then that's it like you just say you need to do loads of research i think it's probably more useful if we link to resources definitely amazing thank you you said that then people with one flat like this kind of stereotypical we're moving together we've got one flat we'll rent that out you don't think that that works anymore but then you were talking about how you know if you have a long-term view don't worry too much about today can you explain like why yeah i think it's um it's mainly on the tax side So something that we see a lot is because I won't go into the mechanics of how it's all taxed.

1:12:04It's really boring and confusing. But the gist of it is if you've got an income that puts you into the higher rate tax bracket, then your property income is not treated favourably. So it's hard to make a meaningful amount of money, if anything, from just the rent. And that's what people always used to do. I think it's very common in like our parents' generation to look at it as like, great, every property is like an extra 300 quid or whatever. Now, I think that just doesn't really work anymore. So yeah, if you do hold on to a home that you used to live in, then you will have the capital growth element of that over the long term.

1:12:43But then you've also got all the risk and the hassle attached to it. So like, you've got to take like, will you make more from that with leverage than you would from investing in the stock market over the long term? Probably because of the leverage aspect. But you've also got a load tied up in a single asset. You've got all the risk, all the hassle and everything else. So you need to be convinced that it's worthwhile for you to do that. Well, I'm not saying black and white, don't do it. It never works. I'm just saying, I think it used to be the default. And now you have to think about it much more carefully.

1:13:13Even with a limited company? But you wouldn't own it in a limited company. That's the thing. Yeah, they've got to get it into the limited company, and then they've got to sell it to the limited company. So then there's a stamp duty. So they basically, to get it inside the structure that Rob thinks is beneficial, they'd pay a load of money, which probably... Which only works if you have. So you think, like, just sell it, and maybe you could set up a company with the money from the sale or something, or like a director's loan into a business if you want to go down the investment route. Yeah, you can do it.

1:13:40I mean, it's very dependent to each person's situation, because you get situations where it can work out fine, but just looking at the majority of situations that we come across and what we get people writing to us about in our Sunday Times column and stuff like that, it's mostly the case that by the time you factor in just the sheer, the cost, the hassle, the tax position, everything else, it just doesn't look that attractive. If it's still the option that you prefer for whatever reason, the one that you're going to stick with and not panic about and it makes you relax and happy and all the rest of it fine two two questions to finish off this model i'm coming back to like our landlords evil this model you know in a way relies on the tenant paying the mortgage the interest on the mortgage or whatever whilst the landlord gets to sit there and ride the gain is this whole model really just landlords extracting wealth from from renters i don't know i don't see it that way because like the way i look at that is you're you're always going to have a housing cost, whatever you do.

1:14:42So you're either renting a property from a landlord or you're renting money from the bank. So you're paying interest on your mortgage. So if you own a place, it's not all just like capital repayments. The vast majority of it at the start is interest. So I don't think it's a fair characterisation. I think it is fair to say that if you were lucky enough to have assets and to have property and be able to borrow money during that whole highly weird period when property prices were going crazy and then money was free and all the rest of it, then you will have ended up in a far better position than someone who is just coming into their 20s now.

1:15:19And that is not fair, but that's how it is. Yeah, I guess you could say, is Coca-Cola just extracting value for people because it's charging for drinks when they could just get free water? Do you know what I mean? You could say about any product ultimately, but there is a value exchange there in the sense of coca-cola gives people a drink that they want to drink yeah landlords provide housing but like you say there's this weird moral layer on top because housing is an essential that people almost think it's like the water companies isn't it people get really they think that that shouldn't be something that people make money from yeah exactly i mean there's got to be there there is a housing there's a housing service element but and then there's also just like a there's an there's an asset element it's like if you if you need it to be provided by a an if you need someone to front the money to buy the thing to take the risk so it's there to be for you to rent if you want to then there needs to be a motive for them to do that and so the only alternative to that is you is either all state provision or it's like everyone owns their home so again we're coming back to where we were at the start whereas it's like i think you could you could argue about the size of it how it's regulated what the experience is like all these things but you can't say that it's just wrong to have any kind of profit motive flat out.

1:16:34People don't really mind about the profit motives of the bank on the mortgages that they provide because they feel like that gives them an ability to buy a house. If we said banks can't make money from mortgages, no one's got a mortgage. You need 100 % to buy your house every time. Exactly. But if you look at the mechanics of that, it's like they've just magicked up the money out of nowhere to lend it to you. And they're making your own money. Then they get bailed out of it. It all goes wrong. Yeah, yeah, yeah. So you want to talk morality. They're magic money machines and stuff. Okay, and then finally, is buy to let dead?

1:17:03I think in some situations, yes, but in general, no. And we've talked about some of the situations. I think it's definitely harder than it used to be. And there are some situations where it just doesn't work. But the model that I use that we talk about a lot, that still very much works. And so buy to let is not dead, but it's less dominant than it used to be. is less attractive than it used to be, especially in the short term. And I don't necessarily think that's a bad thing.

1:17:39Go on, NT, what do you think about that one? A little bit daunting trying to get into the property market, isn't it? Like you've got a lot of factors you've got to take into account. You were just going to be like, like that one, I'll take it. Yeah, exactly. I like that one. How much? Yeah, it is a lot of work, a lot of research. It's a big decision, isn't it? I'll tell you what, we'll link below everything that Rob said he would provide us. I think there was a calculator and a load of other resources to educate yourself and help you make a good decision before you jump in. Whether you think it's moral or not is a whole other thing.

1:18:06Evil landlords like they, man. Yeah, yeah, I'm going to be selling.

1:18:12Please remember, this is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's pretty much a guarantee. Past performance is no guarantee of future results. So your money is at risk with investing and other fees may apply. As with everything financial, please do your own research. We really encourage that because no one cares more about your money than you. I'm Damo. Fanti. This was an episode of Making Money from Our Company Most. It was filmed and edited by the team at Flow Spire, Jack and Ben. It was produced by Ruth Edwards and brought together by Will Stollerman.

1:18:42What about Ruth and Toothless a Dog? Yeah, shout out them too.