BTL - profit margins?

chucknorris

Thrugelmir wrote: »

Starting point needs to be around an 8 to 10% yield.

Any less and the margins aren't worth the risk. Particularly if you are carrying a high level of mortgage debt.

Absolute rubbish (I would have expected better from you), see above post.

tim123456789

chucknorris wrote: »

He (and you) hasn't got it right, you can't look at the initial yield/profit and fully appreciate or evaluate btl as a potential investment. It is a long term investment where the yield grows over time and offers the opportunity (in the long run) of capital growth. Also it isn't for everyone, you have to know what you are doing.

I'm well aware that it works on the basis of capital growth

I just don't think that in the next decade there's going to be any (of significance)

tim

Richard_Watters

A few thoughts:

Capital growth is the real prize. In the long term it's almost certain that house price inflation and a geared investment will create wealth.

BUT you have to be able to service the loan come what may and this might mean subsidising the property during a period of falling prices, even negative equity, so not for the faint hearted or those with nothing to fall back on.

The risk with the £36k flat is that a) tenant quality will be low resulting in high maintenance, higher void level and b) capital growth on properties like this might be much lower than on properties in better areas (they are also the first to drop in value when prices fall and the last to pick up).

A 5.7% yield doesn't work in isolation but as part of, for example, a pension pot, it might be better to subsidise the geared property investment rather than stick the money into a traditional pension plan.

TexasChainstoreMascara

Finding this quite interesting. Can someone help with this for me please?

I've had a few investors look at my house which is for sale. One was interested and had a tenant waiting to put in ti the house.

House on market for 115k. Estate agent told me potential rent value was £575pcm. He made an offer of 102k which I rejected. He later said he was unwilling to raise his offer.

Was he just trying his luck or is he missing a trick? What offer would generate an adequate yield from this property?

(I am aware that it is down to the individuals expectations of what money they should be making).

FloppyDisk

Thanks all, you've given me a lot to think about in terms of longer term planning!

chucknorris

tim123456789 wrote: »

I'm well aware that it works on the basis of capital growth

I just don't think that in the next decade there's going to be any (of significance)

tim

There is no guarantee of capital growth (that is why I merely said 'opportunity for') although I would rather bet that there was capital growth 10 years from now than bet against it.

My main point was that the initial yield/profit doesn't indicate the total potential return of the investment. The only reason that we don't want to invest more in property is that we already have over £3.5m worth of property and also I am 55 and I don't want to be a landlord much longer than about 10 years so the end is in sight.

Lizling

chucknorris wrote: »

There is no guarantee of capital growth (that is why I merely said 'opportunity for') although I would rather bet that there was capital growth 10 years from now than bet against it.

Surely you'd still benefit from increased capital even if house prices remained completely flat, except for inflation, for the entire duration of the mortgage?

E.g. For a 200k flat and a mortgage of £150k at 5%, if tenants paid rent exactly equal to the mortgage and to keep things simple, there were no additional costs (i.e. no monthly profit or loss at all) you'd have paid off about £111k after 10 years at today's prices. That's £111k of capital you didn't have before, or £11k per year. Keep renting it out until your tenants have paid off the the mortgage for you, and you're richer by* whatever value you sell for.


*I won't call this earning

chucknorris

Lizling wrote: »

Surely you'd still benefit from increased capital even if house prices remained completely flat, except for inflation, for the entire duration of the mortgage?

E.g. For a 200k flat and a mortgage of £150k at 5%, if tenants paid rent exactly equal to the mortgage and to keep things simple, there were no additional costs (i.e. no monthly profit or loss at all) you'd have paid off about £111k after 10 years at today's prices. That's £111k of capital you didn't have before, or £11k per year. Keep renting it out until your tenants have paid off the the mortgage for you, and you're richer by* whatever value you sell for.


*I won't call this earning

Of course you would, but what you describe is both equity and capital growth (inflation only growth is still growth). Also capital would only be paid off only IF you had a repayment rather than interest only mortgage, personally I always preferred interest only because I could claim all the interest against tax and keep my profit for future deposits. But as I said above I am finished with investing in property now.

tim123456789

Lizling wrote: »

Surely you'd still benefit from increased capital even if house prices remained completely flat, except for inflation, for the entire duration of the mortgage?

"completely flat, except for inflation" is not completely flat, it is growth

completely flat is completely flat I.e the cash price is exactly the same as now

HTH

tim

dtsazza

Lizling wrote: »

Surely you'd still benefit from increased capital even if house prices remained completely flat, except for inflation, for the entire duration of the mortgage?

E.g. For a 200k flat and a mortgage of £150k at 5%, if tenants paid rent exactly equal to the mortgage and to keep things simple, there were no additional costs (i.e. no monthly profit or loss at all) you'd have paid off about £111k after 10 years at today's prices. That's £111k of capital you didn't have before, or £11k per year. Keep renting it out until your tenants have paid off the the mortgage for you, and you're richer by* whatever value you sell for.

You're double-counting there (or else, you're single-counting from a different perspective).

At the end of any given period, you're richer by the sum total of the rent you received, minus the expenses you incurred (mortgage interest, renovation, etc.).

Whether you go on an IO mortgage and keep the surplus in your bank account, or go on a repayment mortgage and so have some/all of the surplus going to increased equity in your house, the total surplus (i.e. profit) is the same.


You benefit from increased money, from the process of renting itself. Converting cash to capital or vice versa has no impact on your total overall return; it just changes how its distributed. (It would be like claiming that Income versions of funds give a better return than Accumulation versions because they pay dividends, whereas in reality the total return is identical.)