I hope it doesn't get ugly.

From: Mike .

Hi Folks,

I've been trawling a property investment forum on the UK Motley Fool site [ http://www.fool.co.uk/ ] and found this interesting post:

Hello MacDollar

None of this surprises me. I wrote a message about it a few months ago as the buy to let syndrome had all the classic bubble signs. People who a couple of years ago would never have contemplated doing so, and had no experience of property at all other than as owner occupiers, were suddenly doing this because they perceived it as such a good idea. I saw this amongst many of my clients.

It was fueled by some of the leading money lenders pushing buy to let mortgages. This was unthinkable until recently.

Many of these small investors will now get their fingers burned as in all bubbles as rents fall below the mortgage repayments. And if interest rates rise after the short term fixed deals most investors obtained run out.... The fun will really start.

Small investors are often a classic contra cyclical indicator, same with the stock market. When the shoe shine boy starts trading shares and making money, time to get out.

regards, pyad - 4/6/99

Mike: Did you find the bit that caught my eye? Shock!! Horror!! RENTS FALL BELOW MORTGAGE REPAYMENTS. Help!! The sky is falling!!

Folks, here we are being sold, via books and seminars, how wonderful Negative Gearing is and in the UK, with similar tax benefits for investment property, the Brits cringe at the thought. Surely they would think we're a bunch of mugs to smile at buying negative geared property.

To prove my point I'll post to the MF forum detailing the so-called wonderful benefits of Negative Gearing and post back their responses. I hope it doesn't get ugly.

Regards, Mike
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Reply: 1
From: Asy .

OK, Mike,

I looked for it on the MF boards, couldn't find it, could you please post link or at least say what board it's on?



"Don't forget what happened to the guy who suddenly got everything he ever wanted...
He lived happily ever after.
(Willy Wonka).
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Reply: 1.1
From: Jeremy Laws

The UK investment (residential) property market is not as advanced as it is here. It is an advertised bonus that some banks will offer _almost_ the same rates on buy to let as on owner occupied properties. Managing agents there will argue tooth and nail why for standard managing agency rights they deserve 15%. If they do no inspections, no tenant finding the charge is a 'very reasonable' 10%. The returns on residential property mirror those here in australia, especially with hideous management fees taken into account. Property prices are high, but the UK (as in the US) also goes through definite boom bust cycles, which I _haven't_ seen reflected in Australia in the last 30 years or so.
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Reply: 1.1.1
From: Waverly Bay

Jeremy - agree that the lending market in UK is no where near as sophisticated as oz.

Owner occupiers can get 90% lends.... but the "buy to let" crowd are often restricted to 70% (on the basis that "buy to lets" are to treated in the same basket as business lending).

Also, tax losses are "quarantined" against future rental income from the property - - ie IP losses cannot be offset against salary income: only against future rental income. This is one of the reasons why neg gearing loses its appeal a bit in the UK.


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From: Robert Forward

>Also, tax losses are
>"quarantined" against future
>rental income from the
>property - - ie IP losses
>cannot be offset against
>salary income: only against
>future rental income. This
>is one of the reasons why neg
>gearing loses its appeal a bit
>in the UK.

And how I wish they would do this in Australia. But most on this forum know that I wish Neg Gearing was removed here in Australia, but yes for those that ask of cause I will use it's advantages whilst I can.


The Sydney "Freestylers" Group Leader.
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From: Mike .

Hi Folks,

This UK property investment forum is about as active as ours. It started 9/2/99 (seven months older than ours) and they are up to 16,253 posts. A recent post suggested they were posting at least 80 per day. Not bad.

It is located within The Motley Fool UK website. I think to access the property forum which is called Investing in Property you first need to register.

The Home page is at: http://www.fool.co.uk/

Rather than give you a URL straight to the forum I'll go thru the steps to get there from the Home page so you know where it is hiding. Try accessing it first before registering. I'll explain some points about registering in a moment.

At the Home page you'll see a menu bar at the top.

1. Click - Discussion Boards
A list of Discussion Board folders appears on the left side.

2. Click - Investors' Roundtable
A list of Board names appears on the left side.

3. Click- Investing in Property

You're now there. You may see just one Thread title which can be uncollapsed to see all the posts. To see previous 7 days or more click icon which looks like <<.

If you need or want to register, at the Home page below the menu bar there is a link which says "Register for your free ISA guide." Click that.

A form will appear to enable you to enter your e-mail address and password. There maybe checked boxes referring to freebies. Uncheck those boxes.

After you have submitted your details you will receive a verification e-mail straightaway so do a download on your e-mail program.

It will say:

You're a Registered Fool!

User Name: mdengler@onetel.net.uk

To "activate" your account, go to:


You'll need to type in the password you created when you registered to
make it all work.

Once you have linked back and logged in you will have access to post on the forum.

On the point that Waverly Bay made:

Also, tax losses are "quarantined" against future rental income from the property - - ie IP losses cannot be offset against salary income: only against future rental income. This is one of the reasons why neg gearing loses its appeal a bit in the UK.

If this is the case then I can understand why nobody would like to be in a negative cashflow position. Therefore, I don't follow Robert's reasoning to bring this law here to Oz.

I'll check this out before I post to MF otherwise it may be plain silly to bring it up.

Regards, Mike
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From: Mike .

Back again,

Thanks, Waverly Bay - you're absolutely right.

I've just spent a bit of time on the inlandrevenue.co.uk website reading a PDF doc called IR150 - Taxation of Rents: A Guide to Property Income.

It contains 145 pages in total and Rental Buisiness losses are dealt with from page 86 onwards.

There appears to be two categories of lets:

1. Furnished holiday lettings where the losses can be offset against general income as with our Negative Gearing laws; and

2. Ordinary rental business where the losses are carried forward to be offset against future rental income. Problem with this is if you sell all your holdings while carrying losses, those losses cannot be carried forward against a different rental business, therefore the losses can't be recovered.

There is more interesting detail so if anyone is interested at having a look at the PDF doc it is at: http://www.inlandrevenue.gov.uk/pdfs/ir150.pdf

Now, unfortunately, you can't save this to disk but there is a way it can be done. Here goes:

1. First go to: http://access.adobe.com/simple_form.html

The following text will appear:

With access.adobe.com PDF to HTML conversion by form, all you have to do is type in a URL to an Adobe PDF document into an electronic form and select the "Get This Adobe PDF Document As HTML" button. The Adobe® PDF document will be converted on-the-fly to HTML, and will be returned to you immediately in your browser application.

2. Now enter this URL into the form: http://www.inlandrevenue.gov.uk/pdfs/ir150.pdf

3. The PDF document will be downloaded as a .pl file and so you still can't save it to your disk drive.

4. On menu bar, click "File", then "Select All", then "Copy".

5. Open your Word program and "Paste" it in.

6. Save to disk drive as a .doc file

Regards, Mike
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From: Kristine .

Hi, Mike

During 1986 I lived for a time in Northchurch, just out from Berkhamstead, and rented a converted stables. The owners lived in the house, the property was subdivided, but with a common driveway.

I became quite friendly with our landlady, and the property had actually just been sold when I came upon it, with settlement one day after we were due to return to Oz.

The landlady told me that she and her husband had bought the unrenovated stables with the intention of converting part into a 'granny flat', and the other part into a cattery. However, when they rented out the flat, they had to pay full income tax on the rental, but the interest on the loans and the outgoings were not deductable against income, so (a) they were paying all expenses out of wages, and (b) paying income tax rates on the rental income as well. No depreciation benefits or any other tax concessions. They were prepared to keep the cattery, as it was a thriving business, but the flat had to be sold.

In contrast, when we were in Wroxham during 2000, we noticed many billboards advertising 'rent to let' mortgages. We wondered whether the tax laws had changed, but they hadn't, it was simply that there were many more DINKS, usually older couples where the children had grown and the wife had returned to work, and they wanted to buy something with the money, rather than just add it to their pension fund.

The Wroxham house was fully furnished and let out through Hoseasons at holiday rental rates, so perhaps the tax allowances which you mentioned ie an ability to aggregate earnings / expenses applied to this arrangement.

I believe that we Australians enjoy the most beneficial tax arrangements in the world, in regards to encouraging ordinary people to invest for their future, by allowing the pooling of all sources of income, and adjusting expenses against that income before the tax is calculated. To the best of my knowledge, this encouragement does not exist anywhere else. Nonetheless, the extended English family is now sporting a few 'second' properties, although more by accident than design. Don't forget, the local Councils have traditionally been the landlord, and there are still many protected tenants, paying peppercorn rents. The urge to buy is not fostered as much as here.

It's great to read the American www.creonline.com, and to hear about English market trends, but Australian property and tax laws are unique. For example, my sister-in-law bought the lease on her flat about seven years ago. We don't do that here very often, and although it's legal, it's not socially or commercially acceptable to be trading in 99 year leases. In England many properties are impossible to subdivide, or are Crown land, so the 99 year lease is an acceptable substitute to the freehold which we trade in.

On another subject, in September, 2000 the Scottish Government announced it would install central heating IN EVERY LEASED OR RENTED PROPERTY THROUGHOUT SCOTLAND AT THE GOVERNMENT'S EXPENSE DURING THE COURSE OF THE COMING WINTER. The average expense for this would be approx 2,000 pounds per property (A$5,200), however, the savings in health care, deaths from cold, time off work etc would more than cover the outlay in the first year alone!

So I hope you've got your thermals in your luggage Mike, 'cos even in Summer it can get a bit chilly.


Have you tried Speckled Hen, or Green King? Bristol Cream is very nice, too.


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From: Mike .

Hi Kristine,

Thanks for taking the time to submit that absorbing post. This is the first time that I have stuck my head outside the Somersoft Forum to see the problems facing investors elsewhere. I have already submitted two posts to the www.fool.co.uk/ forum and so begins another journey which, I hope, will give me a better appreciation of the best and worst both countries have to offer investors. (BTW my handle on the UK forum is MickDoneDee - a little bit more interesting than Mike103. Mike103 sounds like a name for a replicant or something. ;P)

The range of responses I got to my Negative Gearing post were interesting:


Negative gearing is an Australian phenomenon. The tax situation in the UK is different, as are (perhaps connected) available yields.

The general view on the Motley Fool site(s) is that you don't make decisions based primarily on tax considerations. The situation in Australia has been that residential property prices in any major city have risen so far and so fast that any investor would be pleased just with the gain, even if there were no tax benefits. Adding in the benefit of "negative gearing", where your losses on property can be offset against other income, plus depreciation, and its a very favourable story.

What happens when prices fall? Then you have capital losses and significant negative income.

I have been looking at the Australian market, and while the absolute levels are interesting (i.e. property is cheap by the standards of most first world countries), yields are worringly low (5% in Sydney, slightly more in Melbourne or Adelaide, rising to 6%+ in Cairns, but with interest rates higher than in the UK or US). For foreigners it becomes almost a currency play - fair odds that the Aussie dollar will recover a bit over the next few years.

To return to your thoughts on the UK, I would be worried about the effect of politics on taxes. At the moment the pressure seems to be to reduce the tax benefits of IIP (Investing In Property), not increasing them.

Best regards, Andrew

The govt is trying to encourage private pensions here, well thats what they claim anyway :).

If you could lose income tax in this way it would devestate private pensions, which some argue are only useful to delay income until you drop out of the high tax bracket. So don't hold your breath.

The govt is trying to encourage private pensions here, well thats what they claim anyway :).

Which will be why they abolished tax-relief on dividends? I'm clear now... sigh ...

The "magic pill" that sucks almost everyone in to living with debt is that the losses can be offset against other income from, say, a job, in the year those losses occurred. - (from Mike's post)

The magic pill that sucked me in (and will continue to fuel the property market to substantially higher levels than now) is this:

Three years ago I forced myself to consider my pension provision properly. I calculated that Her Indoors and I would have to 'invest' £1k per month in our current pension plans from now until retirement for us to get an index linked annuity at the end paying enough for us not to consider ourselves 'poor' in retirement. (We extrapolated the performance to date of our current pension plans to reach this conclusion.) Here in the UK everyone is forced to use at least 75% of their pension capital to buy an annuity, so there is no pressure on the pension industry to deliver good value for money.

Therefore, we decided, we would be prepared to support a property project/venture to the same degree if it delivered equal or greater retirement benefits because the whole portfolio would be inherited by our sprogs instead of the insurance company gobbling it up. But now we find each property we add to the portfolio at the moment DECREASES the monthly contribution we have to make to support our property project to the point where is actually making us a PROFIT now, so our pension plan currently has a negative cost and is shaping up to deliver awesome benefits on retirement.

So we won't be stopping investing in property unless the whole deal degrades to the point whereit costs us substantial amounts of cash to support each month, and I suspect there are many more property investors thinking the same way. The property market here offers a stunningly good value pension compared to the conventional alternative.

Cheers, Mike4

Mike again: From those responses it seems that property investing has become blurred with retirement planning rather than a tool for wealth creation to enable early retirement which seems the focus for the more entrepreneurial spirits on this forum.
I'll have to trawl the archives further to get a picture of whether positive gearing strategies are discussed on this forum. Perhaps a word search for Kyosaki, Wraps, Flips, Lease Options, Co-developments, Partnerships etc should provide some insight.

Kristine, you mentioned thermals...at work a fellow mentioned he was soon to take a holiday in Australia, I asked him to tell the folks back home that there are two winters here. He said, "That's right, the first one ends June 30 and the second one starts July 1." It's spring here but I'm still wondering when it will be safe to go out without my coat, scalf and umbrella?

BTW, what is Speckled Hen, Green King, Bristol Cream?

Regards, Mike
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From: Kristine .

Cor, Mike

Speckled Hen is a lovely, light, crisp ale, and Green King a somewhat heavier beer.

Bristol Cream is a dream sherry. You can buy it in litre bottles - doesn't last long, but keeps the cold out.

We have relatives in Boundary Road, Wood Green, near the tube station. The houses are all terraces, but with small front set backs and long, skinny gardens. Lots of internal rebuilding going on, the streets are full of skips piled with building rubble.

Very interesting neighbourhood, every country in the world represented in a densly populated area. The local Sainsbury stocks some amazing food.

Property prices have risen sharply in recent years, but this is perhaps more 'taking up the slack', plus the serious renovation money, rather than improvement without obvious reason.

You appear to be 'setting the cat amongst the pigeons' on the fool forum, judging from your excerpts you are stimulating some lively debate.

Keep up the good work Mike, as Australian Ambassador for the Department of Early Retirement.



ps Try an Eccles pie. Four 'n' Twenty won't ever be the same again!
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