What is UK property really worth? Here are three ways to find out

michaels

Surely yields should be compared to those on shares rather than 'safe' investments because there is the potential for capital gains?

I have another question for the property is obviously overpriced (not using the value word). IN the SE and London where price/income ratios are much higher, prices are further from historic norms and rental yields are poor, prices are stable. In other parts of the country price/income ratios are often near 3x, rental yields beat savings accounts and yet prices are falling.

This would suggest to me that supply and demand are the factors driving prices not any arbitrary numbers relating to affordability or yield?

Thrugelmir

chucknorris wrote: »

The mugs always look too in depth at the initial yield, the properties I bought back in the 90's are yielding about 29% now based on the original purchase price. Property is a long term investment.

That's easy to say with hindsight.

The same could apply to BP shares if bought when denationalised , the dividend income was reinvested and the shares sold before Deepwater Horizon occurred. A terrific return. The best days are over.

chucknorris

Thrugelmir wrote: »

That's easy to say with hindsight.

The same could apply to BP shares if bought when denationalised , the dividend income was reinvested and the shares sold before Deepwater Horizon occurred. A terrific return. The best days are over.

I said it when I bought the property too, if you read my post more carefully you would have noticed that I also said:

The initial yield never looks good, you have to look beyond that to see the value. There is no way I would have invested if there was no rental growth, that's what it is all about (or should be).

This is because whilst interest rates merely fluctuate, rents rise (in the long term). This is why it is foolish to focus on the initial yield. You say it is easy to say with hindsight, my response is that I invested with foresight, looking at the long term.

RenovationMan

chucknorris wrote: »

I said it when I bought the property too, if you read my post more carefully you would have noticed that I also said:

The initial yield never looks good, you have to look beyond that to see the value. There is no way I would have invested if there was no rental growth, that's what it is all about (or should be).

This is because whilst interest rates merely fluctuate, rents rise (in the long term). This is why it is foolish to focus on the initial yield. You say it is easy to say with hindsight, my response is that I invested with foresight, looking at the long term.

Most businesses tread water in the early days and BTL is no different. If I were going into it, I'd be happy just to have the rental cover the mortgage repayment and costs for the first few years. But then I'd be looking at BTL as a vehicle for generating income in retirement rather than generating an income while I'm working.

Regardless of where house prices go, rentals will always increase (roughly) in line with inflation, while the mortgage debt is fixed. Well, it obviously reduces if you use the profits to pay down the mortgage.

Carl31

Zero_Sum wrote: »

Goodwill would only be used in property if it was one invester buying from another with a good sitting tennant. Even then the 'goodwill' would be the value of the tennant rather than the actual property.

I was using goodwill as an example of a purchase where the asset purchased is less in value than price paid due to the circumstances. I didnt mean goodwill in a house purchase

Thrugelmir

robmatic wrote: »

Even with that wrong-headed assumption and the conservative estimate of costs, he still gets a return on capital after tax of 2.9% which will effectively increase with inflation

Why are rents guaranteed to rise with inflation in the future?

Zero_Sum

Carl31 wrote: »

I was using goodwill as an example of a purchase where the asset purchased is less in value than price paid due to the circumstances. I didnt mean goodwill in a house purchase

but why would anyone do that, and what sort of circumstances would result in that.

HAMISH_MCTAVISH

Thrugelmir wrote: »

Why are rents guaranteed to rise with inflation in the future?

Far more likely they'll rise by above inflation for most of the next cycle, given the critical housing shortage and increasing population.

Thrugelmir

Zero_Sum wrote: »

but why would anyone do that, and what sort of circumstances would result in that.

There's no logic in an investor overpaying for a property. With Company acquisitions there's synergy that can result in administrative cost savings and other benefits related to scale of economy with purchasing.

nollag2006

chucknorris wrote: »

The mugs always look too in depth at the initial yield, the properties I bought back in the 90's are yielding about 29% now based on the original purchase price. Property is a long term investment.

The initial yield never looks good, you have to look beyond that to see the value. There is no way I would have invested if there was no rental growth, that's what it is all about (or should be).

I'd beg to differ on your comment about initial yield not being so important.

I got into BTL again relatively recently (bought two flats in 2009, and another in 2011), which all had a minimum of 6% rental yield from the outset. Quite nice, when I can borrow at almost half that, and especially considering the rents (and capital value) have all ticked up well above inflation since the initial investment.