50% drops by 2011

stevetodd

GDB2222 wrote: »

I reckon that 11% is about the right yield for long-term BTL. It's worth having a look at the ARLA review. Average voids are 3-4 weeks a year. Then, there's insurance, maintenance, agency fees, management fees, etc. You work it out. I expect we may differ by 1 or 2%, but there's no way that a yield of 5% is viable.

I know the market well, as well as being a chartered surveyor I have owned investment properties since 1991 and am well aware of the voids and expenses.

What you are missing is that the yield we are discusing is the initial yield expressed as a percentage of the purchase price, this is only the tip of the iceberg in terms of profitability analysis. To be honest this is just an indicator and further analysis is required to fully apprciate the profitability of a rental investment. This is why a lot of amateurs have come unstuck, they did not do their homework.

The true profitablity lies in the yield expressed by the gross profit (ie rent less running costs and void allowance) expressed as a yield on the capital invested, ie not the purchase price but the total of the deposit, fees, furniture, any intial work required, etc. I always run a potential buy through my standard spreadsheet which gives this yield considering all these factors. I would never buy anything until I am quite certain about the profitability of what I am buying, I suspect not all BTL'ers did this

Although I have to say that I have suffered extremely low voids (average of about 1 day per year per property), although I always tend to allow a 1 week void in my analysis, more if going to a new area of course.

IveSeenTheLight

RDB wrote: »

I maintain BTL still isn't worth it at 50% in these times.

The only time you could get a good yield was years ago when you could buy a house for 40K and rent it out 100wk. Those times have gone but will come back, but where will the money come from to even pay 40K- banks? Only cash buyers will get a look in. And I mean cash not collateral of any kind.

I guess your not looking at the right areas or your not looking at the figures correctly.

This month I see a 3 bed house rented out for £1,100 pcm in Aberdeen.
This was bought in May 2005 for £165,000 so would mean a Rental Yield at that price of 8%
Rough estimate of value now (200,000) would mean a Rental Yield of 6.6%
IF it was purchased for 50% of the estimated value now would mean a Rental Yield of 13.2%. Certainly the figures add up so you maintaining its not worth it at 50% in these times is simply wrong

GDB2222

stevetodd wrote: »

I know the market well, as well as being a chartered surveyor I have owned investment properties since 1991 and am well aware of the voids and expenses.

What you are missing is that the yield we are discusing is the initial yield expressed as a percentage of the purchase price, this is only the tip of the iceberg in terms of profitability analysis. To be honest this is just an indicator and further analysis is required to fully apprciate the profitability of a rental investment. This is why a lot of amateurs have come unstuck, they did not do their homework.

The true profitablity lies in the yield expressed by the gross profit (ie rent less running costs and void allowance) expressed as a yield on the capital invested, ie not the purchase price but the total of the deposit, fees, furniture, any intial work required, etc. I always run a potential buy through my standard spreadsheet which gives this yield considering all these factors. I would never buy anything until I am quite certain about the profitability of what I am buying, I suspect not all BTL'ers did this

Although I have to say that I have suffered extremely low voids (average of about 1 day per year per property), although I always tend to allow a 1 week void in my analysis, more if going to a new area of course.

I'm not a surveyor, so I bow to your knowledge, but I have been letting residential property since the early 80's. So, I have a bit of experience. Of course, I do my sums the way you have outlined. My point is that my figures always come out requiring a gross yield on the property of >10%. That is partly because I value my time as a valuable asset.

stevetodd

GDB2222 wrote: »

I'm not a surveyor, so I bow to your knowledge, but I have been letting residential property since the early 80's. So, I have a bit of experience. Of course, I do my sums the way you have outlined. My point is that my figures always come out requiring a gross yield on the property of >10%. That is partly because I value my time as a valuable asset.

I don't use agents which is a signifiacent saving, I do not add my time in because of the rental growth to come, which is significant. However I do not have to spend much time on them, over 4.5 rental properties (one owned with my wife) I think I only spend less than 25 days a year, although I do have British Gas covering the electrics, water, drainage and central heating and the tenants contact them directly. I did have a maintenance contractor doing everything for a retainer but he ended up too expensive but even worse than that he started letting the tenants down, with appoints etc.

GDB2222

stevetodd wrote: »

I don't use agents which is a signifiacent saving, I do not add my time in because of the rental growth to come, which is significant. However I do not have to spend much time on them, over 4.5 rental properties (one owned with my wife) I think I only spend less than 25 days a year, although I do have British Gas covering the electrics, water, drainage and central heating and the tenants contact them directly. I did have a maintenance contractor doing everything for a retainer but he ended up too expensive but even worse than that he started letting the tenants down, with appoints etc.

I have a surveyor coming to look at my house this afternoon (some cracks I'm worried about). He charges £150 an hour, so say £1000 a day. You're doing £25k a year's work on these properties that you don't count. That could certainly explain part of the difference in our yield figures.

RDB

Do you really think that if prices fall by about 50% rents will stay the same or even go up as Steve Todd tries to say?

If you think that you dont understand the word recession.

How can you say if you are getting a yield of about 4% and when house prices drop 50% you buy another one then your yield will be 8% yay. Or you could live on planet Earth and know that in recession everything comes down profits, rent, house prices everything.

Anyway your figures are deceptive, Steve Todd the whole point of what Im saying is even if you have profitable yield now, Im saying that when house prices half and rents go down at the same time as mortgages going up and getting very expensive. Then even if you bought a BTL at 50% of what it was, its still not really worth it the way the future is.

All due respect though Steve Todd I know you are more experienced than me being a surveyor and all, but also because you own 4.5 odd BTLs of course you dont want to believe your portfolio is going to be worth half. Had you thought about trying to sell quick now for whatever you can get before they are worth 50% less?

brit1234

Every one knows rents are falling in London anyway and the recession hasn't really started. So with both falling rents as well as prices and higher minimum deposits (25%) its not looking like a bail out from landlords. Especially as they are loosing about £3,000 in equity in every property in the capital per month.

chucky

brit1234 wrote: »

Every one knows rents are falling in London anyway and the recession hasn't really started. So with both falling rents as well as prices and higher minimum deposits (25%) its not looking like a bail out from landlords. Especially as they are loosing about £3,000 in equity in every property in the capital per month.

if everyone mean you Brit - i guess you're right but you're wrong for a change.

i imagine you're probably talking about Isleworth as I don't know what goes on there but see here, rents are doing fine
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/3056278/Rental-demand-soars-65-per-cent.html

stevetodd

GDB2222 wrote: »

I have a surveyor coming to look at my house this afternoon (some cracks I'm worried about). He charges £150 an hour, so say £1000 a day. You're doing £25k a year's work on these properties that you don't count. That could certainly explain part of the difference in our yield figures.

Do you really think he earns about £229,000 a year then

RDB

chucky wrote: »

if everyone mean you Brit - i guess you're right but you're wrong for a change.

i imagine you're probably talking about Isleworth as I don't know what goes on there but see here, rents are doing fine
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/3056278/Rental-demand-soars-65-per-cent.html

I disagree Chucky, Everyone I talk to agree rents are definitely falling in London and the future looks like bigger falls. So Brit is right.

Please try to back up your claim with something credential if you still believe what you read in that paper.

"There are lies, damn lies and statistics" that paper has all 3. Reality is something different.