Last year was the end of an era. I sold the Modern Flat, after owning it for over 20 years.
A bit of history
I ended up with my Modern Flat in that common way that many ‘accidental’ landlords have. It was my first rung on the property ownership ladder. Until it was time to get onto the second rung. I thought I’d live there for several years – though in practice I lived there less time than I had originally expected.
The flat itself is a new build flat in central London, to a reasonable spec. It is slightly bigger than average, but has no outdoor space whatsoever. I loved living there, albeit that was a long time ago. It had a great reception space but rather cramped bedrooms with insufficient storage. This suited me fine – bedrooms are for sleeping in, and living rooms are where you live. The building had a residents’ association, a management company, and a porter. I bought the flat on a long 200+ year lease, and had to sign up to both a ground rent (doubling every 25 years) and a service charge (set by the management company).
I managed to climb onto the second rung without selling the Modern Flat. Instead, I kept it, ever since, I rented it out. This isn’t, strictly, a ‘buy to let’ property in that I didn’t buy it to let it.
I haven’t strictly treated my Modern Flat as an investment. As an illiquid asset, I don’t track it as part of my invested portfolio. Nonetheless, my decision to sell it was mostly financially driven.
Buy to let financials – the theory
The case for being a landlord, as I see it, has three key financial arguments in its favour:
But my net worth includes an important asset class – property – that I don’t normally track, but which I have held in some form for over 20 years.
So, this post takes a look at how my real estate assets have performed.
Real estate works completely differently, for me, than my investment portfolio. For starters, I have never bought a home as an investment. But let’s start at the beginning.
My property owning history
I nearly got on the property ladder in the mid 1990s.
I hadn’t realised, until a friend pointed it out a few years too late for me, that in fact one of the easiest times to get on the property ladder was the moment when I graduated and moved to London. My first job earnt a reasonable London salary of just over £20k, and 1 bed flats in a reasonable part of Zone 1 in London were available for under £70k (now £800k-£1m, sigh).
Mortgage rates had dropped from >13% in 1990 to around 7%. The interest costs could have been around £5k, a quarter of my first-job income. That was in the mid 1990s. It didn’t occur to me to buy a place, and of course those property prices were so high…..
By the late 1990s, buying a property had become a lot harder. But once I was earning £40k+ I decided to take the plunge. I found a reasonable 2 bed place very close to Zone 1 for £200k (now £500k). The mortgage (at around 7% interest, i.e. interest costs were £13k, a third of my gross income) and the deposit (£20k, if I remember rightly, for a 90% mortgage) were a massive stretch….. and then I was gazumped. By the time I reorganised, the places I wanted cost £220k+ and I couldn’t quite afford it.
Here in the UK, many have taken pride in our enlightened energy policies.
We led the world, under Mrs Thatcher in the 1980s, with privatising state utilities – so our gas, electricity, telecoms etc are all in the hands of private companies. Guarding against the natural tendency to monopolies in such sectors are our industry-specific regulators OFCOM and OFGEM.
Not for us the Japanese/German greenery-gone-amok policies of turning off nuclear power mid life. Not for us the hypocritical and myopic German policies of reliance on brown coal and Russian monopoly gas. And not for us using fracking to unleash new reserves under our precious, fragile, green and pleasant land; we’d rather let the Americans do this in their flyover states and then pay them, now a net energy exporter themselves, a premium to liquify it and send it over to us. Who wouldn’t?
And to top it all, the UK has been one of the fastest markets to adopt Electric Vehicles (EVs), hastened by a variety of subsidies and tax incentives. EVs pay lower car taxes, lower congestion taxes, lower parking fees, and could be purchased with the help of several thousand pounds of subsidy. Over half of new car enquiries are for EVs, and over 20% of new registrations are for pure or hybrid EVs.
Being in the vanguard in 2019
The results of these enlightened energy strategies have seen our CO2 emissions fall faster than most OECD countries. We were paying, until recently, only a modest premium for our greenification. Consumers have had a choice of over 70 companies, and many hundreds of tariffs – allowing such innovations as Electric Vehicle-specific tariffs, empty-property-specific tariffs and tariffs accumulating loyalty points. And our privatised, competitive model has been ‘improved’ with a Labour Tory retail price cap, restraining operators from milking the can’t-be-bothered-to-shop-around segment.
The chart below shows what this felt like chez FirevLondon back in 2019. Those halcyon days when I worked away from home five days each week, drove a petrol car, and lived in one house – admittedly my Dream Home. The Dream Home consumed around 46k kWh of energy each year – admittedly far more than an average (smaller) UK household – yet cost me less than £250pcm of energy. My car usage was far less than an average household, so the fuel for that cost me only around £1k per year – ensuring I could drive a large-engined funmobile ‘cheaply’ (25p/mile doesn’t add up to much if you don’t drive many miles!). My total fuel costs amounted to less than £4k per year. Of that, the taxman received around £840 p.a. of tax and fuel duties – chiefly from my petrol car. Energy is taxed at a reduced rate of Value Added Tax (VAT) of 5%, compared to 20% for normal expenditure.
Energy costs p.a. in 2019
How times change
Now, unfortunately, in 2022 it turns out that the world looks completely different.
FIRE v London 