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Landlords:What is your minimum yield?
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As has been stated you need to think about your expected return in both rent and capital appreciation.
Near me in London yields are very low as people expect capital appreciation. This is effectively a (probably leveraged) gamble.
Investing in a higher yield (more typically smaller properties in less "trendy" areas) is a lower risk play.
If you are just getting in to BTL I'd give it a lot of thought... I am looking to reduce rather than increase my exposure because of:
- changes in tax deduction rules about mortgage payments
- not wanting to invest in London as prices seem crazy (although people have said that for a while...) and not wanting to invest outside where I know0 -
10% was the traditional target. However these days people are reducing this increasingly to very dangerous levels as they overpay for properties in the South East.
10% is safe and good return. The investors going well below this are just speculating on capital gains and that can go very wrong.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
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10% was the traditional target. However these days people are reducing this increasingly to very dangerous levels as they overpay for properties in the South East.
10% is safe and good return. The investors going well below this are just speculating on capital gains and that can go very wrong.
I'd buy the flat I'm living in tomorrow if it was for sale at £57,000. 10% is unrealistic any more.:footie:Regular savers earn 6% interest (HSBC, First Direct, M&S)
Loans cost 2.9% per year (Nationwide) = FREE money.
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10% has been the ROI target for most capital not just property.
with borrowing rates so low there are plenty in the market that will accept lower gross yiels as the the cheap borroing helps gier up the ROI.
For property to wash it's face as a business you want to be getting close to/over 10%, for the cash flow to keep the business in profit after all costs(they don't change much because prices go up) is essential.
Those that take the risk on capital growth accepting low yields could hit a cashflow issues with a maintenance bill, void or borrowing rate rise so need a bigger start up slush fund.0 -
Thanks very much for all the responses everyone, just wanted to get a flavour of opinions from people with more insight than me.0
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You should be looking at a rental yield of 5-7%
If you are borrowing a 3-4%, you would should be looking at a premium of a couple of percent above that to compensate you for your trouble and to cover voids. Then sit back and enjoy the capital gains.
I have a BTL in Clapham Junction, bought for just over £250k in mid 2009, now worth £450k. Getting rent of £1,900 pcm. No voids to date. That's a very healthy yield of 9% before costs, but that is extremely unusual.
You can ignore the "advice" of the likes of brit - he regularly gets ripped to pieces on the Debate house prices board spouting nonsense about house prices falling 50% by Christmas0 -
When you assess any investment you always benchmark it against the Risk Free rate - the rate at which you can see a return from an investment which is effectively as close to risk free as you would anticipate - ie GILT's - some shares are pretty low risk, commodoties etc. Obviously the lower the risk the greater the certainty and the worse the return. Residential property when analysed with the risks involved does not appear to offer sensible returns on capital invested.0
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getmore4less wrote: »10% has been the ROI target for most capital not just property.
with borrowing rates so low there are plenty in the market that will accept lower gross yiels as the the cheap borroing helps gier up the ROI.
For property to wash it's face as a business you want to be getting close to/over 10%, for the cash flow to keep the business in profit after all costs(they don't change much because prices go up) is essential.
Those that take the risk on capital growth accepting low yields could hit a cashflow issues with a maintenance bill, void or borrowing rate rise so need a bigger start up slush fund.
If you can get an ROE of 10% in businesses other than BTL then maybe it would be better to invest in an alternative. Just a thought.0
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