BTL Returns

Generali

antrobus wrote: »

According to LendInvest the average rental yield in the UK is 4.56%. Calculated using property sale and rental prices extracted from Zoopla for the time period 1/1/2015 to 13/10/2015, apparently.

The area with the highest yield of 5.9% was .......

.... Aberdeen.

Great.

My research shows something different for London which is what we were discussing.

If you would like to discuss another part of the world I'd be happy to do so.

antrobus

Generali wrote: »

Great.

My research shows something different for London which is what we were discussing.

If you would like to discuss another part of the world I'd be happy to do so.

The OP contained no particular geographical limitation. I must admit I assumed that the question related specifically to the UK (rather than Dubai, or Guatemala) because of the reference to 'BTL'.

But if you're only interested in London, I'd suggest London Property Watch. 6.2% available on a one bedroom property in Balham, apparently.

http://www.londonpropertywatch.co.uk/average_rental_yield.html

mwpt

cells wrote: »

I want a net yield from my savings account of 10% does not mean I will get what I want

A cash purchase can accept a much lower yield than a debt purchase as a debt purchase has higher costs and needs to manage cash flow and most investors can not sustain negative cash flow for a long period.

The typical mortgage restrictions are 125% rental cover at 5.5% pay rate. That means with a 25% down mortgage you can not bid lower than 5.15% gross yield the bank simply says no if the bid is below 5.15%

Cells, I'm not trying to insult you here but why do you never answer a straight question? I'm asking, pretty clear cut, no mentioning mortgages, no twisting. I'm not asking what your fairytale wish is, or anything like that. It's a straight forward hypothetical question. You know, where you picture a scenario as real and answer accordingly:

If you had cash and you wanted to invest in buy to let (without mortgage) what would the gross yield have to be for you to buy.

EDIT: Question is open to all landlords.

cells

mwpt wrote: »

Cells, I'm not trying to insult you here but why do you never answer a straight question? I'm asking, pretty clear cut, no mentioning mortgages, no twisting. I'm not asking what your fairytale wish is, or anything like that. It's a straight forward hypothetical question. You know, where you picture a scenario as real and answer accordingly:

If you had cash and you wanted to invest in buy to let (without mortgage) what would the gross yield have to be for you to buy.

EDIT: Question is open to all landlords.

its a silly question as what I or other individuals want does not set the market.

You would need to ask thousands of sellers and buyers peple what they would want and then maybe you can get an idea of what a clearing price would be

or....simply look at the market look up prices and rents for an area and there you have it


For me its 4.5% - 5.5% does not matter if it is with debt or with equity. However that is not a fixed number it changes with time and what the conditions are.

is that what you were looking for?

HappyMJ

mwpt wrote: »

Cells, I'm not trying to insult you here but why do you never answer a straight question? I'm asking, pretty clear cut, no mentioning mortgages, no twisting. I'm not asking what your fairytale wish is, or anything like that. It's a straight forward hypothetical question. You know, where you picture a scenario as real and answer accordingly:

If you had cash and you wanted to invest in buy to let (without mortgage) what would the gross yield have to be for you to buy.

EDIT: Question is open to all landlords.

Depends on the market. If I had cash and income already I would buy with a 2% gross rental yield if there was a potential for a 5% YOY capital growth.

Capital growth taxes are only 18/28% with quite a substantial tax free allowance where taxes on income are 20/40% even 45% so if you're buying with cash wouldn't buying a property with higher capital growth be a better choice.

Generali

antrobus wrote: »

The OP contained no particular geographical limitation. I must admit I assumed that the question related specifically to the UK (rather than Dubai, or Guatemala) because of the reference to 'BTL'.

But if you're only interested in London, I'd suggest London Property Watch. 6.2% available on a one bedroom property in Balham, apparently.

http://www.londonpropertywatch.co.uk/average_rental_yield.html

Mea culpa. The London posts were in reply to cells's post claiming that London yields are 4.5% typically which seems demonstrably untrue. I've not found a single property yet with that yield. There may be a few but London yields just aren't 4.5% as a rule.

chucknorris

mwpt wrote: »

Chuck, or other landlords. If mortgage finance was not an option to you but you were cash rich, could you tell me what your gross yield would have to be on a property to invest in buy to let (as opposed to borrow to let)?

I'm trying to work out what the rough price of a property would be, given the rent. For example, a two bedroom flat renting for £1500 pm. Could you walk me through the figures?

My thumb suck calculations are:

£1500 x 11.5 months (leave 1 month void every two years as safety net) = gross rent pa = £17250.
Maintenance costs? £1200?
Agents fees? 5%? = £75 pm x 12 = £900 pa
Insurance etc (I don't know, ignoring)

So net profit from rent = £15150

My guess is people would want a net yield of 5% or greater?

Asset value = £15150 / 0.05 = £303000

Do you value things differently? Do you forecast and include future rent rises and capital gains into the present asset value and therefore value it higher?

The gross yield would remain the same whether you buy with cash or a mortgage, it is merely the percentage that the rent is of the property value, it doesn't tell you much (about profitability), it is usually only used as rough comparison of one property to another.

I think what you want to know is, what are the gross profits? I have 2 x 2 bed flats in Battersea that I believe are not too far away from the values that you are looking at.

They are worth about £460k each, the rent (each) is £16,404, The costs (each) from my 2015 tax return were:

£2,800 Maintenance (includes service charge, which is cheap because it is run by a co-op).
£0 Management (we do this ourselves).
£350 Other expenses (mileage, advertising, postage, misc etc.

Notes:

1. If we didn't have a co-op management and we used a letting agent to manage our properties, that might add about another £3k costs.

2. £550 Allowance should be set aside for redecoration and white goods (none done this year, but decoration reqd every 5 years or so, white goods don't seem to last as long and one every 2 years might be about right, if something goes wrong with white goods, I tend to replace, not repair).

3. I haven't included mortgage interest because that would vary widely, depending upon individual circumstances.

4. I have never had a void (other than instigated to do work, i.e. new kitchen, bathroom etc.). If I maxed out the rent, that would probably change.

When I previously bought property, I cost modeled it over 10 years (and beyond), I was more interested what it would look like 10 years on, than in the first year (but obviously I need to also know what the first year looks like too). As you are probably aware I am approaching the selling up stage (at least partially) rather than considering investing further.

mwpt

chucknorris wrote: »

The gross yield would remain the same whether you buy with cash or a mortgage, it is merely the percentage that the rent is of the property value, it doesn't tell you much (about profitability), it is usually only used as rough comparison of one property to another.

I think what you want to know is, what are the gross profits? I have 2 x 2 bed flats in Battersea that I believe are not too far away from the values that you are looking at.

They are worth about £460k each, the rent (each) is £16,404, The costs (each) from my 2015 tax return were:

£2,800 Maintenance (includes service charge, which is cheap because it is run by a co-op).
£0 Management (we do this ourselves).
£350 Other expenses (mileage, advertising, postage, misc etc.

Notes:

1. If we didn't have a co-op management and we used a letting agent to manage our properties, that might add about another £3k costs.

2. £550 Allowance should be set aside for redecoration and white goods (none done this year, but decoration reqd every 5 years or so, white goods don't seem to last as long and one every 2 years might be about right, if something goes wrong with white goods, I tend to replace, not repair).

3. I haven't included mortgage interest because that would vary widely, depending upon individual circumstances.

4. I have never had a void (other than instigated to do work, i.e. new kitchen, bathroom etc.). If I maxed out the rent, that would probably change.

When I previously bought property, I cost modeled it over 10 years (and beyond), I was more interested what it would look like 10 years on, than in the first year (but obviously I need to also know what the first year looks like too). As you are probably aware I am approaching the selling up stage (at least partially) rather than considering investing further.

Thank you for the comprehensive answer, though actually you didn't really answer what I asked

I must be communicating badly, so I'll try again. I'm seeking to understand, from anecdotal opinion, what a cash investor would pay for a property, given a specified rent. So I need to understand what sort of yield someone would seek.

For example, let's say you were willing to accept 3% net yield. We work one of your examples.

16404 gross rent
subtract
2800
350
550
= 12704 (before tax)

12704 / 0.04 = £317000 is rough figure a cash investor would pay for the flat. But if instead you were willing to accept a 3% yield, the price jumps dramatically to £423500.

Just trying to understand these figures and understand what sort of floor there might be on London properties.

chucknorris

mwpt wrote: »

I'm seeking to understand, from anecdotal opinion, what a cash investor would pay for a property, given a specified rent. So I need to understand what sort of yield someone would seek.

It is entirely subjective, no one could answer that question (for everyone, just themselves), what I want, you want and cells want would/might be very different.

Cells and I could comment, but the only unknown information to someone that has no experience of holding residential investment property was provided in my post, so everyone could now take that on board and say what they wanted. As for me, I don't want to be (substantially, diversity is always a draw, so retaining some property is desirable) in property for much longer. Pretty soon you would have to pay me a lot more to stay in property.

EDIT: Of course I am ignoring potential (real term) capital growth, it doesn't matter to me as I am getting out soon.

swindiff

I bought a BTL in Oct 2013 for 165k.
Stamp duty £1650. Rental income £850/month. Yield 6.18% based on purchase price alone not including SDLT or costs. 8.4 weeks rent to pay SDLT

Current value is around £220k so stamp duty would be £4750. Still only charging £850/month but these type of properties are getting £950 now so will use that figure. Yield would be 5.18%. 21.7 weeks to pay SDLT.

Definitely a lot less attractive.