BTL yield - is it enough?

murphydog999

Is a 5% yield enough to make it worthwhile? (Cash purchase.) Advice says minimum 7%, but that's not going to happen. Any thoughts please?

Randvegeta

Are you talking about the gross yield? Meaning the yield you get before expenses and taxes? If so, then no that's not very good.

If you mean 5% yield AFTER expenses and tax, then it's not bad. Consider you wont find many (if any) bank accounts with interest that high, and you may even have an asset that appreciates in value over time!

brit1234

Randvegeta wrote: »

Consider you wont find many (if any) bank accounts with interest that high, and you may even have an asset that appreciates in value over time!

However it is more likely your asset which will depreciate over the next year which won't happen in a bank account.

It use to be that yields of about 10% was good and standard, I don't believe yields 0f 5% is good especially when mortgage rates are likely to continue rising. I would try and get better than 5%

abankerbutnotafatcat

Consider the capital appreciation side as well, there is normally an inverse relationship between yield and capital growth prospects.

princeofpounds

You can 4.5% on a 5 year fixed savings account. Doubt you would get that much after all costs on this rental.

So do you think that property prices are going up? Because that's the only reason why you would even think about bothering.

Mr_Thrifty

Sounds like a rubbish investment to me. Remember, you have to consider yield AND risk.

4.5% guaranteed in a long-term savings account is far better than a "possible" 7% with all the aggravation that goes with it (problem tenants etc). Remember, that 7% could also quickly become -20% if you have a bad/non-paying tenant, a period of vacancy, vandalism, or if house prices go down. Not to mention you won't get calls at 2am because the toilet won't flush or because the TV's lost its reception.

DannyboyMidlands

No, it's terrible. I'd reckon on a gross yield pushing double figures to make the hassle and risk worthwhile.

The missus and I have money with NS&I earning RPI+1% tax free, so around 5% currently with no hassles. Even our bog standard current accounts pay 3% or something.

And I think that house prices are gonna fall, certainly in real terms, for the next 5 years.

murphydog999

Thanks all. It would be 5% gross, so not good then. As I said it would be a cash purchase - unless we had a small btl mortgage to free up money elsewhere.

JQ.

5% gross is a terrible return in the current market.

nollag2006

A 5% yield isn't really all that high. My properties all have a return around the 7-8% mark, and are rising nicely in value.

As for 100% cash purchase, you will lose the tax benefits of being able to write interest off as a business expense.