BTL Returns

mwpt

chucknorris wrote: »

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.

Ok. More bad communication on my part I guess. I just thought it was the sort of direct, personal question that people could actually answer.

If you asked me for instance, I'd say depending on my views on how capital growth might play out, I'd want 3% net yield minimum if I thought capital growth was almost certain, and around 6% minimum if uncertain.

I will work on my communication skills.

Generali

mwpt wrote: »

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.

In simplistic terms, this is how bond pricing works (bonds are a bit more complex because they mature which property does not).

There is definitely an argument to be made that property in London has been behaving like bonds during the period of NZIRP which might make the process of rates normalizing quite interesting. Rates normalizing doesn't mean them going up to 2% IMHO.

Generali

swindiff wrote: »

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.

Can I ask where abouts that is please? Presumably it's not London.

swindiff

Swindon, I could see prices were starting to rise so bought while I could. My intention was always to live in it, just not yet, and wanted to buy while I could still afford to. I don't think the increase has finished yet either, with the electrification of the rail line the journey to London should be reduced to 45 minutes making the area more attractive to commuters.

Generali

swindiff wrote: »

Swindon, I could see prices were starting to rise so bought while I could. My intention was always to live in it, just not yet, and wanted to buy while I could still afford to. I don't think the increase has finished yet either, with the electrification of the rail line the journey to London should be reduced to 45 minutes making the area more attractive to commuters.

Interesting, thanks.

I don't think I've been to Swindon. Nice place or hell hole?

If you're 45 minutes from central London that's about the same as living in Putney or Southfields I guess. What sort of property does £220,000 get you in Swindon?

swindiff

Like most places it has very nice bits and not so nice bits and all sorts in between. It's known for its roundabouts and for many years being one of the fastest expanding towns in the country. It grew around the railway industry. £220k will get you a decent 3 bed semi or a 3 bed 3 storey townhouse on a modern estate.

Generali

swindiff wrote: »

Like most places it has very nice bits and not so nice bits and all sorts in between. It's known for its roundabouts and for many years being one of the fastest expanding towns in the country. It grew around the railway industry. £220k will get you a decent 3 bed semi or a 3 bed 3 storey townhouse on a modern estate.

There isn't anywhere up for sale at the moment for less than £220,000 in Putney according to Rightmove.

cells

mwpt wrote: »

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.

No investor in anything has a fixed sum they want or they will go home. If you have savings it has to be in something. The three big asset classes are shares property and bank savings account

Personally my limit would probabkly be 1% above shorter term savings accounts and MSE shows a top rate of 2.2% so add 1 to that to give 3.2%

So maybe as a general rule I would want 1% more for property and 3% more for shares than i wouod get in a savings account.

Of course if the UK was a country that built 400,000 homes a year like it should I would want more from property maybe the sane +3% as shares as I wouldn't expect to get much real term capital growth.

But again what I want and what happens are two very different things I'm not a market maker

cells

Generali wrote: »

Rates normalizing doesn't mean them going up to 2% IMHO.

Real rates will normalise at 0%

The bond market has already figured this out its going to take everybody else another 5 years to see it

Generali

cells wrote: »

Real rates will normalise at 0%

The bond market has already figured this out its going to take everybody else another 5 years to see it

Time will tell.

If the bond market 'got it' then the BoE wouldn't have required £375,000,000,000-worth of QE to push interest rates down to 0%.

This time it's exactly the same as previously.