BTL and gross yields

RHemmings

PoorDave wrote:

I love the way (jealous?) people on MSE seem happy to portray BTL LL's as toothless chav/working class simpletons who have no idea about money.

Libitina asked a valid question. And you reply with this? How many BTL landlords even understand yields? I would say that there is a fair number who have no idea. Would you dispute this? If so, what evidence would you base your dispute on.

My main question in this thread is that, if the BTL market changes so that new BTL purchasers demand reasonable rental yields for the properties they buy, how will that change the market? This would imply fewer idiots involved in BTL, and more people who know what they are doing.

sm9ai

PoorDave wrote:

I love the way (jealous?) people on MSE seem happy to portray BTL LL's as toothless chav/working class simpletons who have no idea about money.

I am renting and I am in no way jealous of all the btl landlords.

Annoyed at them for raising the property prices, but quite pleased that they have helped reduce my rent in real terms over the last few years.

whambamboo

RHemmings wrote:

It used to be said that people buying houses to let needed a gross rental return of 8% in order for buy to let to be a good investment. With recent house price inflation, people are prepared to buy houses giving a much smaller yield as they expect the value of the house to increase.

Do people here think that new buy to let investors will once again expect higher rental yields close to 8% in the near future?

BTLers are frighteningly clueless. My colleague, a young Asian chap, newly employed just bought a flat in Ealing with a deposit from his parents. I asked him what his yields were, and he said he's not really sure, he thinks the rent doesn't cover the cost of the morgage. I said, 'no, what is your gross yield, as a percentage of the sale price?'. He has no idea what yield even is - and he is a computer programmer, you would think would be fairly numerate). He said he doesn't mind, because it's just costing him £50 a month or so and in x years (I don't know how long his mortgage is ), he'll have a 'free' house, and it will have gone up loads in value.

He's thinking of buying another one, because he says the flat has gone up £20-25k already.

Compared with my old landlord, to whom I paid £625/month rent in 2003. He did up the flat a bit and sold it last year for £155k, having bought it for I think about £40k in the 90s. I am not sure what his yields were when he bought the place, but I can imagine that they were a good deal better than 8%.....

Some people are just impressed by the TV shows.

By the way, the guy doesn't have a house of his own, he's living with parents to save money to buy more Ealing BTLs....

gallygirl

richgirl wrote:

So why hold at 4.7% ? or will you be happy when your yield is back to 8.4% due to a fall

I am selling 2 and holding 2. Reasons to hold:1. I fully understand about yields - but, as I have said, they only represent part of the picture. In addition to my earlier comment re rising values I also take into account the fact that my inital investment was only around 5k (including legal, repairs, deposit). So my gross yield based on my investment is 84% - not a bad rate...... Or, to look at it another way, after all mortgage, insurance, repair costs I was running at £1200 per annum pre-tax profit (although IR make it higher because only interest allowed). That's a yield of 24%...... You can make figures say what you want them to (I should know I'm an auditor....) - which one gives the truer picture?2. I bought the BTL's hoping for some capital growth - not expecting / relying on it. My 'back of fag packet' calculations told me that even if there was minimal capital growth I would more than cover my costs and after 25 yr have a property paid for with minimal outlay by me, with that initial outlay recouped over 5 yrs (it actually took less than that). If house prices only kept pace with inflation I would would still have a reasonable asset bringing in a decent size 'annuity' for my pension - but with the advantage of being able to access the value. 3. I could have invested in shares (I actually sold shares to give deposit) but companies go bust - unlikely, but still a risk. Not many houses go bust. 4.7% yield on a share I own 100% of or 4.7% yield on a BTL I only own a (increasing) % of, but get 100% of yield and 100% of capital growth. 4. My risk is spread - had a max of 4 BTL's, now reducing to 2. Rather than 1expensive 'white elephant' I chose to buy 2 v cheap excouncil houses, keep the 1 I had been living in when bought property with OH. 1 dearer Vic terrace with long term potential to renovate. Unlikely to have 4 voids at same time (although 2 at present!!!!! 1st time any have been empty, and both empty through choice as decorating to sell, 1 already sold STC). I can afford to pay mortgages on all on a short term basis - if I put the 2 empty in the paper 1 would probably have 2-3 potential tenants (4 bed) and 15+ for the others. 'Council' properties will always be needed. 5. Hassle free (virtually). Had 1 problem tenant (had to get court order!!!!) - 6 months of problems, but apart from that all the same tenants since start, ticks along quite nicely....... Reasons to sell:1. I acknowledge I have been v lucky with capital gains. The area the 2 are in is not great but looks good at the moment - I'm 'liquidising my assets' (ooh, get me).2. I want to leave area (actually, leave country ....) so trying to simplify things. May sell 1 other if it becomes free, and keep better one indef. Sorry for essay, but obviously feel strongly about this!!!!!!
Edit: sorry about the layout post, paras etc don't work when I'm in the office!

whambamboo

ali007 wrote:

I am selling 2 and holding 2. Reasons to hold:1. I fully understand about yields - but, as I have said, they only represent part of the picture. In addition to my earlier comment re rising values I also take into account the fact that my inital investment was only around 5k (including legal, repairs, deposit). So my gross yield based on my investment is 84% - not a bad rate......

That's really silly. You might as well say that the shares you bought in 1980 for £1 and are now worth £16 and pay a 80p dividend are giving you 80% yield. They are clearly not: it is 5%. The price you paid originally is not relevant, unless of course you would like to sell for that price now. If you can take the cash out at current values, and put it somewhere else, which you can, then your arguments are wrong.

Jim_B_3

CB1979 wrote:

well my 2 bed flat that i've just bought is £167k (of which £165k is mortgage)

total monthly mortgage payments (on the "dreaded" Interest Only mortgage) is £550ish,

Where did you get a 4% mortgage? Is that a fixed rate?

gallygirl

I wasn't suggesting for 1 minute I think I have an 84% yield, merely that statistics don't give the whole picture, and whilst a low yield may indicate a poor investment it can also indicate a v good capital return. As I do want to sell now the price I paid IS relevant. And I have taken cash out in the past which is why we've ended up with 4 BTL's & 1 overseas - although gearing is still only around 40%. BTL hasn't made me millions, but it has given me options I would never otherwise have had. I acknowledge I've been v lucky - but I was only lucky because I took a calcualted chance. I wish I had taken a chance 4 years ago & bought a property in Gravesend - it seemed too risky at the time but would have made a lot of money if I had. The problem now is not that people are calculating the yield and risk and still deciding to invest, but that people are investing without being aware of all the factors. When people with 130k interest only mortgages on 160k properties are asking how they can finance a BTL - THAT is risky.

CB1979_2

Jim_B wrote:

Where did you get a 4% mortgage? Is that a fixed rate?

I've got £125k from Abbey @ 4.49% fixed for 2 years @ £470pm

and a £40k from C&G (from my parents) @ 4.99% @ £150pm

sorry it's nearer to £650ish pm than £550pm

basically I've used some of their equity to allow mt hang onto my £40k in my bank to invest elsewhere/start up my business.

I suppose this will open the floodgates for the "parents are helping their kids to much"

jamesn_2

I am a FTB BTLer looking to invest in Oxford. Yields around here are 3-5.5% depending on area and property. Obviously, you do not need such high yields as you did previously because of low interest rates. If you can borrow at 5% and let out at 5% then you wont lose lots.

James

Mrs_pbradley936

jamesn wrote:

I am a FTB BTLer looking to invest in Oxford. Yields around here are 3-5.5% depending on area and property. Obviously, you do not need such high yields as you did previously because of low interest rates. If you can borrow at 5% and let out at 5% then you wont lose lots.

James

I hope you are right and in Oxford you have a steady student population, but do take into consideration income tax, voids, gas safety checks and lots of other expenses that people forget about (or do not realise they have to pay)