Yield %

RedHitman

Hi guys,

Tried the search function but found nothing on yield.

I've been lucky enough to inherit some cash along with my brother, and we've decided that we will pool together and buy a house to rent out.

There are two houses for sale right near me (a decent area currently going through a £1billion investment in the town centre and transport links - which will be amazing) and I'm interested to know what yield % is deemed as good?

The houses currently have tenants in on AST and will both bring in 5.75% yield. Is this good?
We will be cash buyers, no mortgage.

Thanks y'all! :beer:

Physics

Assuming that's after costs (voids, management fees, maintenance, tax), sure, 5.75% is reasonable yield.

RedHitman

Physics wrote: »

Assuming that's after costs (voids, management fees, maintenance, tax), sure, 5.75% is reasonable yield.

The houses already have tenants in on contracts, so no voids for the time being.
No management fees as we'll be looking after it ourselves.
Maintenance - hadn't factored this in (thanks). I've read to deduct £1,000 a year in maintenance (seems high to me, but will stick with that).... That would drop the yield to 4.47%.
Tax wouldn't be applicable (I don't think) because I only work part time and the income wouldn't push me above any threshold...

I'm very naive and new to this, so there be lots I'm missing!

Pixie5740

What sort of contracts do these tenants have?

Read Tenancies in England/Wales a guide for tenants & landlords and join a landlord association.

A 5.75% gross yield is ok but depending on how much money we're talking about you could probably achieve not far off 5.75% just using high interest current and savings accounts or other low to medium risk investments.

Bluebirdman_of_Alcathays

Do either you or your brother own any property already? SDLT is a tax - have you factored this in?


Are you sure income tax wouldn't apply? The personal allowance is only £11k, and you already work part time. The numbers are looking very low if there is no IT to pay, especially as there is no mortgage interest to deduct.

RedHitman

Pixie5740 wrote: »

What sort of contracts do these tenants have?

A 5.75% gross yield is ok but depending on how much money we're talking about you could probably achieve not far off 5.75% just using high interest current and savings accounts or other low to medium risk investments.

Thanks for the advice. I've got a lot of research to do I guess.
They are on Fixed Term Tenancy I believe.

I'm not one to gamble with investments. Yes I know BTL is somewhat of a gamble, but I have more control over it myself than investing in a company on the stock market.

This will be a long term investment with the hope that in a few years time, we will be able to use the income generated from the rent as a deposit towards another BTL and go from there again. In a perfect world we'd like to have 4 or 5 houses and then that would be our sole income.

RedHitman

Bluebirdman_of_Alcathays wrote: »

Do either you or your brother own any property already? SDLT is a tax - have you factored this in?


Are you sure income tax wouldn't apply? The personal allowance is only £11k, and you already work part time. The numbers are looking very low if there is no IT to pay, especially as there is no mortgage interest to deduct.

I own my own house outright, yes. So yes I would pay 3% SDLT when first buying it. I'm not including this cost and other solicitors costs though as these are one-off charges and I have a separate "pot" for these sort of expenses.

I am a support worker so have a unique tax code which allows me to earn nearly £15k. I only work part time and don't come close to that. My wife is also on this tax code and no longer works. So if I needed to, it could go in her name and under her allowance.

HouseBuyer77

The houses already have tenants in on contracts, so no voids for the time being.

This is a long-term investment, you will have voids. Maybe factor in one month every year?

Maintenance - hadn't factored this in (thanks). I've read to deduct £1,000 a year in maintenance (seems high to me, but will stick with that).... That would drop the yield to 4.47%

Frankly £1'000 seems low. Remember there will be big ticket items like a new boiler occasionally. You may end up getting workmen in more than you would on your own house. You might be willing to put up or work around things that need fixing or happy to slowly sort stuff in your own time but your tenants might not. This means hiring someone to get jobs sorted.

Tax wouldn't be applicable (I don't think) because I only work part time and the income wouldn't push me above any threshold..

Personal allowance is 11k this year. Will your job income + rent be less than 11k per year?

Yes I know BTL is somewhat of a gamble, but I have more control over it myself than investing in a company on the stock market.

Whilst you do indeed have direct control other investments have the advantage they're far more liquid. Don't want your money in that stock any more? Hit sell, can be processed electronically and cash in your bank in mere seconds. If the BTL isn't working out and you want to get rid of it it could take months, maybe over a year. You can also diversify. Buying a BTL with your cash is putting all your eggs in one basket.

Bluebirdman_of_Alcathays

RedHitman wrote: »

I own my own house outright, yes. So yes I would pay 3% SDLT when first buying it. I'm not including this cost and other solicitors costs though as these are one-off charges and I have a separate "pot" for these sort of expenses.

I am a support worker so have a unique tax code which allows me to earn nearly £15k. I only work part time and don't come close to that. My wife is also on this tax code and no longer works. So if I needed to, it could go in her name and under her allowance.

You can have as many pots as you like - not including these costs is totally distorting your yield% - do you think when people invest in stocks they ignore one off like cost of purchase?


If you think I'm being facetious, I'm not - take this scenario. The purchase involves far more legals than initially envisaged, and the solicitor bill goes from £1k to £5k. That will hammer your yield. You can choose to ignore it, but your investment will definitely be less valuable.

RedHitman

HouseBuyer77 wrote: »

Frankly £1'000 seems low. Remember there will be big ticket items like a new boiler occasionally. You may end up getting workmen in more than you would on your own house. You might be willing to put up or work around things that need fixing or happy to slowly sort stuff in your own time but your tenants might not. This means hiring someone to get jobs sorted.

Completely understand what you're saying. I've lived in my house now for 4 years. The only time I've needed something doing was exactly what you mentioned - a new boiler. Boiler + labour did indeed cost me close to a grand.
You may be absolutely right (I'm 100% naive and new to this!)... but other than a new boiler (which happens once every 5 or more years, not EVERY year)..... what else could there be that would be an extravagant cost? I'm also the fortunate position that my Dad is a joiner/plumber. So any little jobs would be done with no cost. It would only be big things that would cost. But how often does that happen?

Personal allowance is 11k this year. Will your job income + rent be less than 11k per year?

Said in other post which you might've missed, I am on a unique tax code due to my job. My job income + rent would probably be less than my allowance, yeah.

Whilst you do indeed have direct control other investments have the advantage they're far more liquid. Don't want your money in that stock any more? Hit sell, can be processed electionally and cash in your bank in mere seconds. If the BTL isn't working out and you want to get rid of it it could take months, maybe over a year. You can also diversify. Buying a BTL with your cash is putting all your eggs in one basket.

My father in law has tonnes of stocks and shares. This is how he makes a living and has done for the past 30 years. He hates it. He hates seeing how volatile it can be. But he doesn't possess the patience (or social skills! Ha) to be a landlord, otherwise he'd have done that instead. I spoke to him about investments, and as he's been very successful over the years, wanted him to help me that way. He talked me out of it and told me to buy property instead!

RedHitman

Bluebirdman_of_Alcathays wrote: »

You can have as many pots as you like - not including these costs is totally distorting your yield% - do you think when people invest in stocks they ignore one off like cost of purchase?


If you think I'm being facetious, I'm not - take this scenario. The purchase involves far more legals than initially envisaged, and the solicitor bill goes from £1k to £5k. That will hammer your yield. You can choose to ignore it, but your investment will definitely be less valuable.

I don't think you're being facetious at all and appreciate your honesty and advice. Like I said, I'm completely new to this and this is why I'm asking people on here who will have had experience in it.

Ok, so talking numbers, this is it. I have available £120k. I hope to buy a house for £110k, leaving me with £10k. This £10k "pot" is for SDLT, solicitors fees, any initial repairs, etc.
So the way I looked at it (which may be wrong by what you're saying) lets say the house cost £110k (simply the bricks and mortar - the other things were one-offs). The rental is between £550 and £575 per month, giving me about 6%. That's £6,600 a year. Minus off £1000 a year for maintenance and one month of void, gives me £5,000. That takes the yield to 4.5%ish.

I have two friends who have houses they rent out (on BTL mortgages) and without sounding too harsh, they aren't the sharpest knives in the drawer if you know what I'm saying! So if they can do it, I feel I can easily do it too. And I'll have no worries about fulfilling the mortgage payments. I hate debt and will never be in debt.
I'm fortunate to have some money in the bank which is sitting there doing absolutely nothing and I could use it for an investment I can seemingly control...