average yields are closer to 3%, before interests go back up!

NorthFin

If average yields are closer to 3% now while interest rates are still at 300 year lows, then how can there be any profit in BTL when interest rates correct back to more normal levels?

Now average yields are closer to 3%. In many cases they are lower. I was also amused to read this in the comments section of the Guardian from ‘elwoodjblues’: “I am BTL landlord and my net yield after costs is… 0.5%. Not exactly the scandalous profiteering guardianomics would have you believe”.

Those kinds of returns don’t matter as long as the market is rising. But if it reverses – particularly in such a heavily leveraged market – then the whole market can look very shaky, very quickly. No yield, falling capital values, and a whole lot of debt that is suddenly that much harder to pay back. Leverage works in reverse too.

michaels

Shares don't yield very much either and yet people still buy them....

caronoel

3%????

As an experienced landlord, I am getting 6% rental yield on my portfolio. Capital appreciation is in excess of 10% pa over the past 6 years.

I am looking at a new property: estimated rental yield is 6.5%, and finance costing me 3% for five year fixed. This is before any capital appreciation.

Not so worried about rising or falling markets in this environment, as I have plenty of wiggle room.

NorthFin

caronoel wrote: »

3%????

As an experienced landlord, I am getting 6% on my portfolio.

I am looking at a new property: estimated yield is 6.5%, and finance costing me 3% for five year fixed.

Not so worried about rising or falling markets in this environment, as I have plenty of wiggle room.

I hope you still have plenty of wiggle room when interest rates are back to normal and the market is falling.

If it so easy for you to get 6% yield, why is the average around 3%? I suspect give it time, include vacant properties and bad tenants evictions and agency fee's, not to mention damage and maintenance, you will find you are close to the national average now before interest rates go back to normal.

Generali

caronoel wrote: »

3%????

As an experienced landlord, I am getting 6% rental yield on my portfolio. Capital appreciation is in excess of 10% pa over the past 6 years.

I am looking at a new property: estimated rental yield is 6.5%, and finance costing me 3% for five year fixed. This is before any capital appreciation.

Not so worried about rising or falling markets in this environment, as I have plenty of wiggle room.

Gross or net yield?
Also, how do you account for depreciation of the house? (land appreciates but houses depreciate).

NorthFin

Generali wrote: »

Gross or net yield?
Also, how do you account for depreciation of the house? (land appreciates but houses depreciate).

Good questions, I suspect that even that 3% average these days is subjective.

Its not so bad in a rising market, but LL will be asking themselves if they want all the agro when the market next turns.

caronoel

Where does this mythical 3% yield figure come from?

By the time you add in capital appreciation, I am running at 15% return on the portfolio.

Leaving aside the five year fix, and rising rents over that period, I am still very very comfortably covering any potential rise in base rate in the distant future.

NorthFin

caronoel wrote: »

Where does this mythical 3% yield figure come from?

On the other thread about the Wilsons selling up because the yield they are getting is so low.

http://moneyweek.com/buy-to-let-property-empire-fergus-and-judith-wilson/


Half way down the article it says ......


Mr Wilson says current prices may have got ahead of themselves: “Prices always used to go up so that a property would double about every seven years, so about 13% a year. I used to say 10% was quite healthy, but when you see them going up at 25% you think – it can’t continue.”


And there’s no doubt that buy-to-let is not the game it once was. The yields are not there, especially in London. In London in the 1990s you could find yields well over 10%, plus you had the capital appreciation of the property.

Now average yields are closer to 3%. In many cases they are lower. I was also amused to read this in the comments section of the Guardian from ‘elwoodjblues’: “I am BTL landlord and my net yield after costs is… 0.5%. Not exactly the scandalous profiteering guardianomics would have you believe”.

Those kinds of returns don’t matter as long as the market is rising. But if it reverses – particularly in such a heavily leveraged market – then the whole market can look very shaky, very quickly. No yield, falling capital values, and a whole lot of debt that is suddenly that much harder to pay back. Leverage works in reverse too.

caronoel

Ahh!!

Thanks.

That was perfectly clear, and Moneyweek is always such a non-partisan voice on house prices

I am reminded of an old saying: 'Never argue with an idiot. They will only bring you down to their level and beat you with experience.'

chucknorris

Generali wrote: »

Gross or net yield?
Also, how do you account for depreciation of the house? (land appreciates but houses depreciate).

It is usually expressed as the gross yield, but it doesn't really tell anyone much about the profitability. The gross yield is usually only meaningful when you are thinking of buying, and comparing two or more properties and deciding which one offers the better value.

The gross yield on my properties is now only about 3.8% (low because values have shot up). But when I take into account the low mortgage interest (trackers), maintenance expenses and the capital gains tax I would have to pay (if I sold), I would have to invest the equity released in an alternative investment paying over 8%, just to equal my current profitability. Clearly there isn't a suitable (safe) investment that offers that.

However if prices continue to rise (above inflation) I still might sell some property in a few years, nobody ever went skint taking a profit and there isn't any point in trying to keep them forever (because I won't live forever).


EDIT: I forgot to add that the gross yield is also an INITIAL yield (i.e. it ignores future rental growth) I have noticed that most of the bears that poo poo yields as being low, always seem to miss this very important point.

ukcarper

Is average yield the yield on market value of house or the yield on the price the landlord actually paid for property.