What income can I expect from £1m+?

cedarmay

Conrad wrote: »

I get £800 rent per month from each £110,000 London studio I buy.
I do not understand landlords that manage to secure such low returns as the OP here does.

He has £900,000 in equity. You could put down a £38500 deposit on London studios and after the cost of a 5 yr fixed rate mortgage and service charge make £500 pm on each property. Lets suppose each property together with the deposit, refurb and buying costs takes a sum of £45000. This means he could purchase 20 studio flats and have an income after the basic costs of £120,000 per annum.

A good Accountant will make this income look more like £50,000 split between a couple and thus in effect you'd end up taking home after tax about £9000 per month which is equivalent to an employee earning £150,000 per annum.

Thanks for this.

Where in London do studios marketed for £110,000 typically rent for £800 pm? An 8.7% gross rental yield for London sounds impressive.

I gave a detailed breakdown of income and costs for my BTL properties in an earlier post. Could you provide a similar one for the typical £110,000 properties you rent for £800?

I'd like to understand how the £500 pm profit is made after ground rent, service charges, management fees to managing agents, property insurance, and the typical budget for repairs and replacements, and the amount by which you would reduce the £9,600 p.a. (12 x £800) rent to factor in void periods if you were forecasting average long-term annual income. And what 5 year fix are you adding into the mix?

mystic_trev

Conrad wrote: »

I get £800 rent per month from each £110,000 London studio I buy.
I do not understand landlords that manage to secure such low returns as the OP here does.

Conrad. I get around 3% - 4% net on mine, so hardly a Kings ransom. However when I purchased them they were yielding around 10% It's HPI that's reduced the yield, not that I'm complaining! I'd love to know where you can get a studio in London for £110,000. Have you got any links?

atush

I think you base your personal 'yield' gross or after costs on your purchase price and running costs (if net).

you don't base it on future growth or current value, as your own yield is based on what you paid- NOT what it is worth (which is subjective until a contract for sale is signed).

kidmugsy

atush wrote: »

I think you base your personal 'yield' gross or after costs on your purchase price and running costs (if net).

you don't base it on future growth or current value

But you have to base yield on what you think the property would fetch if you want to compare it with the yield on other investments.

cedarmay

kidmugsy wrote: »

But you have to base yield on what you think the property would fetch if you want to compare it with the yield on other investments.

I agree. That's why when I use my own BTL figures I am specific about the current value I could raise in cash by selling, and calculate the yield net of all costs (not the 'gross rental yield'). This way we have a % return on investment for income before tax. You can then look at the tax applied for each investment type and based on individual circumstances.

A pity Conrad hasn't replied to give the detailed income and costs that he says gives £800 pm on a £110,000 property and where in London this is.

SliAbhaile

cedarmay wrote: »

A pity Conrad hasn't replied to give the detailed income and costs that he says gives £800 pm on a £110,000 property and where in London this is.

I await his reply with interest.


@cedarmay, I think your detailed BTL calculations have been the most accurate (and useful) of anyone who has ever posted here.

Suffolk_lass

cedarmay - I only read through today and I don't want to challenge thinking too much. Two areas are worthy of further consideration I think. You mention that children will inherit. We have just gifted a proportion of our new purchase to our son as you can gift property but not money to your children without tax implications and the seven year rule applies for inheritance tax purposes ie if you survive 7 years there is no liability. While your immediate focus is on income for yourselves, there may be a point when this needs further thought and selling your properties would prevent it.

My second thought is related to generating income from high dividend funds. I recall reading a Telegraph article this summer while on holiday (I think it was the last Saturday in July, in the money section) and it talked about several funds - one of which is based on dividends from blue-chip long term property leases. The article also mentioned a Henderson fund for dividend income but I cannot remember which or whether this was the same. I lapsed my kindle subscription after I returned from holiday but it's worth a look to see if you can find it as using some income from your BTL to invest in (possibly) an ISA wrapper you would be less concerned about capital growth and more interested in the usable income generated. I need to do further research myself but I think the dividend is tax efficient, not tax free.

I hope this helps
SL

atush

kidmugsy wrote: »

But you have to base yield on what you think the property would fetch if you want to compare it with the yield on other investments.

A bird in the hand is worth 2 in the bush.

Until it is on the market, and a sale agreed and at completion, the value is what you paid for it, or perhaps if you got it valued by a surveyor for a mtg. You can't base your yield on what you 'think' it is worth. Because it is only worth what someone will pay for it.

atush

cedarmay wrote: »

I agree. That's why when I use my own BTL figures I am specific about the current value I could raise in cash by selling, and calculate the yield net of all costs (not the 'gross rental yield'). This way we have a % return on investment for income before tax. You can then look at the tax applied for each investment type and based on individual circumstances.

A pity Conrad hasn't replied to give the detailed income and costs that he says gives £800 pm on a £110,000 property and where in London this is.

I can imagine areas of london where you might be able to buy a run down one for that. But you'd have to put 30-50K into it to make it good enough to live in? This would reduce your yield.

The best studios are large ones you can make the kitchen a BR, and put a small kitchen in the LR (as no one who lives in a studio in London will be doing much if any cooking really)

cedarmay

atush wrote: »

I can imagine areas of london where you might be able to buy a run down one for that. But you'd have to put 30-50K into it to make it good enough to live in? This would reduce your yield.

The best studios are large ones you can make the kitchen a BR, and put a small kitchen in the LR (as no one who lives in a studio in London will be doing much if any cooking really)

I think you're right. I've had BTL for quite a time now and the maximum net yield you can expect, across a portfolio of properties, over time, after all costs, and taking into account void periods, and using a management company (not doing it yourself) is about 5% return on asset value and 5% growth. I use this as the measure because the option is to sell and invest the cash into a better performing asset if there is one.

Conrad didn't come back and provide the figures or say where in London he gets the yield he claims. It may be possible, but without the figures I can only assume he hasn't included all the costs and made allowances for void periods in his profit figures.

Suffolk lass thank you for your point about gifting to rather than pay CGT when selling and therefore avoiding inheritance tax.

Going back to the 5% (the income portion) net return on asset value and 5% growth from BTL, I still have now to decide if I can get a consistently better income return from any other investment, without sacrificing the growth.

Some of the income funds suggested match and exceed this performance (at least over a few years), but the fees! When the AMC fees are around 5-7% that doesn't seem to leave much margin for a dip in performance before the fund managers would make more than the investors. Which worries me when it's my money taking the risk, and the fund managers getting more than me when the fund under-performs.