Buy To let mortgage help please!

Pobby

Well the savvy investor at the moment is looking abroad.I am going for 100% btl mortgage on 5 apartments(off plan) right on the coastline(terrific sea views) of the Antartic.

Eyesparky

Pobby wrote: »

Well the savvy investor at the moment is looking abroad.I am going for 100% btl mortgage on 5 apartments(off plan) right on the coastline(terrific sea views) of the Antartic.

If the views over the Antarctic are from the Falkland Islands that is a truly good investment ... just wait for all those oil executives arriving to exploit reserves 3 times the size of anything the North Sea could ever boast ... .

Generali

hearts wrote: »

Thank you I stand corrected, that seems to make sense ;-)
Although I still don't understand how this would work in a falling market. Asuming everything the same but value drops to 90k?

Ok Hearts.

£800pcm rent = £9600 per year in rent.

Flat is worth £100k:

Yield = £9600/£100k = 9.6%

Flat is worth £90k:

Yield = £9600/£90k = 10.67%

Flat is worth £80k:

Yield = £9600/£80k = 12% etc...

wecanhelpu

Generali wrote: »

Ok Hearts.

£800pcm rent = £9600 per year in rent.

Flat is worth £100k:

Yield = £9600/£100k = 9.6%

Flat is worth £90k:

Yield = £9600/£90k = 10.67%

Flat is worth £80k:

Yield = £9600/£80k = 12% etc...

This argument about how to calculate yields is an old one - and I haven't contributed before now.

But the way I see it is that the value of the property is irrelevant. It is the price paid or, should I say, the size of mortgage which should be used to calculate yield (which is essentially the profit earned from your investment)

Assuming the same rent and using your figures above Gen, if I had bought that flat say, 15 years ago, and paid 30k for it then surely my yield (or profit) would be higher than someone who bought next door for 100k last year.

The fact that they are worth the same now doesn't mean the yield/profit is the same.

And if the price drops to 90k, 80k, whatever, my mortgage repayments will still be based on 30k (assuming no MEW)

No?

hearts

wecanhelpu wrote: »

This argument about how to calculate yields is an old one - and I haven't contributed before now.

But the way I see it is that the value of the property is irrelevant. It is the price paid or, should I say, the size of mortgage which should be used to calculate yield (which is essentially the profit earned from your investment)

Assuming the same rent and using your figures above Gen, if I had bought that flat say, 15 years ago, and paid 30k for it then surely my yield (or profit) would be higher than someone who bought next door for 100k last year.

The fact that they are worth the same now doesn't mean the yield/profit is the same.

And if the price drops to 90k, 80k, whatever, my mortgage repayments will still be based on 30k (assuming no MEW)

No?

What you say is basically what I thought. I was always under the impression that you could compare yields by your return on your investment. But GENERALIs explanation held water for me cos I could see the point that if your investment had increased then to sell and reinvest in another vehicle then your increased investment would return a greater yield.

Generali

wecanhelpu wrote: »

This argument about how to calculate yields is an old one - and I haven't contributed before now.

But the way I see it is that the value of the property is irrelevant. It is the price paid or, should I say, the size of mortgage which should be used to calculate yield (which is essentially the profit earned from your investment)

Assuming the same rent and using your figures above Gen, if I had bought that flat say, 15 years ago, and paid 30k for it then surely my yield (or profit) would be higher than someone who bought next door for 100k last year.

The fact that they are worth the same now doesn't mean the yield/profit is the same.

And if the price drops to 90k, 80k, whatever, my mortgage repayments will still be based on 30k (assuming no MEW)

No?

That's not yield. The point of yield is that it allows you to compare the cash generated by different assets. If a flat yields 5% and shares in Tesco yield 10%, you might think that it's worth selling the flat and buying the shares as you can generate double the cash. In this instance, it's the money you can realise by selling the flat to buy the Tescos shares that you care about, not what you paid for the flat in the first place.

This is all an example of why I keep banging on about cashflow being the correct way of looking at BTL not yield, IMO. BTL is a business not an investment. As a business you need to look at the cash you generate, not the gross yield your assets produce as you have costs as a BTLer that you don't have as an owner of shares in Tesco or whatever.

Yield isn't the only way to compare investments though. You might prefer to defer yield today for potential yield tomorrow (by buying shares in a rapidly growing company for example). If you are really interested in this stuff, a book called 'A Random Walk Down Wall Street' has loads about different ways of comparing investments. It explains yields, bubbles, alpha, beta - all that sort of thing.

mr.broderick

Generali wrote: »

That's not yield. The point of yield is that it allows you to compare the cash generated by different assets. If a flat yields 5% and shares in Tesco yield 10%, you might think that it's worth selling the flat and buying the shares as you can generate double the cash. In this instance, it's the money you can realise by selling the flat to buy the Tescos shares that you care about, not what you paid for the flat in the first place.

This is all an example of why I keep banging on about cashflow being the correct way of looking at BTL not yield, IMO. BTL is a business not an investment. As a business you need to look at the cash you generate, not the gross yield your assets produce as you have costs as a BTLer that you don't have as an owner of shares in Tesco or whatever.

I have often wondered the same and must admit i agreed with wecanhelpu's thoughts. I think you have explained a very tricky point very well general.

mr.broderick

By the way anyone seen Lee sharp?

wecanhelpu

Cheers Gen.

I think I know what you're saying.

And if that's the case I don't care about yield on my rented properties.

Just gimme the cashflow.

Generali

hearts wrote: »

What you say is basically what I thought. I was always under the impression that you could compare yields by your return on your investment. But GENERALIs explanation held water for me cos I could see the point that if your investment had increased then to sell and reinvest in another vehicle then your increased investment would return a greater yield.

By jove, I think hearts got it! It doesn't matter what you invested at the start, it's where you are now that counts.