Yield %

Physics

RedHitman wrote: »

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!

It's a long-term investment. You should consider voids. In the longterm, they will be (or could be) voids.

If you're managing it yourself, that's time. That time is money you could be working. How much do you think it will cost to manage if you paid yourself minimum wage (or your part-time job wage)?

£1000 a year over the long term does not sound too high at all. That's 1% of your property's value. That's fairly typical. Maybe a little high or low but the right order of magnitude. There are more than boilers. Windows and roofs, doors, white-goods, insurance, redecoration - all of these things cost money. You can avoid them, but that will depreciate the value of the property. You should account for them.

Tax may or may not be applicable right now. But once you have one, two, three properties? And a part time job? It very quickly adds up. If you earn even £6000 a year you start hitting tax brackets with a £500pcm rental.

This all seems a lot of fuss for a fairly mild income stream. If I had £100k and lived in my own house already, I'd put it in a nice diversified portfolio of accumulating index trackers and aim for 3%-6% returns depending on inflation etc. That would be much more liquid and stress free. It would be diversified, and not subject to a single country's (or worse - a street's!) fortunes. It would be much less risky. The upside might be less (housing seems to be going crazy in this country) but I'd already own my house, and that seems plenty of exposure that asset class.

But maybe you know something I don't about houses. If so, go for it.

AdrianC

RedHitman wrote: »

I'm also the fortunate position that my Dad is a joiner/plumber. So any little jobs would be done with no cost.

Wow. So not only can your dad guarantee his availability at short notice to come running when the tenant starts to shout at you, but he gets free materials as well?

Can I give him a list of jobs, too?

RedHitman

AdrianC wrote: »

Wow. So not only can your dad guarantee his availability at short notice to come running when the tenant starts to shout at you, but he gets free materials as well?

Can I give him a list of jobs, too?

Sure, fire away!

_CC_

Once you've factored in all expenses (insurance, maintenance, possible void periods), you'll probably end up with a net yield that isn't much greater than you could achieve by placing the money in various current accounts. You're therefore getting very little additional return for the additional risk.

This was actually the warning given by the Bank of England not that long ago regarding to BTL and why they're monitoring the sector.

That said, you may achieve some capital growth from it too, but that will be subject to CGT and the market is looking quite uncertain in many places.

It's the leverage that usually helps BTL, it wouldn't be my cup of tea as a cash purchase.

RedHitman

_CC_ wrote: »

Once you've factored in all expenses (insurance, maintenance, possible void periods), you'll probably end up with a net yield that isn't much greater than you could achieve by placing the money in various current accounts. You're therefore getting very little additional return for the additional risk.

This was actually the warning given by the Bank of England not that long ago regarding to BTL and why they're monitoring the sector.

That said, you may achieve some capital growth from it too, but that will be subject to CGT and the market is looking quite uncertain in many places.

It's the leverage that usually helps BTL, it wouldn't be my cup of tea as a cash purchase.

You're absolutely right. As the day has gone on since starting this thread and more people have opening my eyes, I've realised the yield I initially thought I'd get at 5.75% has dropped to 4% when I've taken into account all costs.

You see I had a plan that I felt could work. I only work part time (my choice) and wanted something else to do in my spare time which I could potentially grow.

My plan was to buy a house and rent it out - but not be bound by debt to a bank.
I would do this for a few years, lets say 5, and then do it again on house 2. I would use other money I will have saved (along with my brother) together with the rental income from house 1 to buy house 2. So I know own 2 houses debt free. I do the same again, say 5 years down the line I use the money from house 1&2 along with any money me and my brother have saved, to buy house 3. At this point I may need a little mortgage to afford house 3 - but I'll be getting 3 lots of rental income so this will easily be affordable.
I don't see why this pattern couldn't continue to buy a new house every few years.