Which property gives you the best yield?

loll_l

Pixie5740 wrote: »

What do you consider to be a good yield?

Ok I will give details...

I bought a house for £60k which required no work on it. I put down a £30k deposit and got a 10 year mortgage on the remaining £30k which means mortgage payments of just over £300 per month. I have a management agency looking after it for me and they charge me 10% of the £400 monthy rent which has been coming in since I purchased it 2 years ago. With all other charges taking into consideration I am still making a small profit each month.

For my next investment my thoughts are to buy a more expensive property, put around a 20k to 25k deposit down, and get a longer (25 year) mortgage so that the mortgage payments stay lower. I saw a flat in Leeds for £130k which is already tenanted and fetches £750 rent per month. As mortgage payments for this flat would be around £450 per month that would be £300 profit per month before deducting costs/fees etc.

The flat in Leeds is the best yield I have come across so far but there may be other areas and types of accommodation that provide an even better yield than this…. I haven’t got time to search every type of property in every town/city/village in the UK…. Hence me coming on this forum for advice

loll_l

Pixie5740 wrote: »

If you have a deposit somewhere between £20k and £25k then you're looking at properties priced between £80k and £100k (assuming max 75% LTV). To generate a 6% gross rental yield (assuming you have no void periods) then you'll need a rental income of £400 to £500 pcm.

So that those figures rule out somewhere on the outskirts of London and probably most of the South East of England and several other large cities too.

Thanks - this is helpful.

AnotherJoe

loll_l wrote: »

I am already renting out a separate property so yes. This other property does not have a good yield at all (rent and mortgage payments are both very similar) and if I had my time again I would have bought somewhere/something different.... hence me coming on here asking for advice.... I do not want to make the same mistake again.

With regards to the "why property" question.... I have some savings but have no pension so I'm looking to invest in property to secure my future.

I"ll ask the question again. Why do you think property, rather than some other investment choice, will secure your future better?

And a follow up question, why dont you have a pension?

Pixie5740

loll_l wrote: »

Ok I will give details...

I bought a house for £60k which required no work on it. I put down a £30k deposit and got a 10 year mortgage on the remaining £30k which means mortgage payments of just over £300 per month. I have a management agency looking after it for me and they charge me 10% of the £400 monthy rent which has been coming in since I purchased it 2 years ago. With all other charges taking into consideration I am still making a small profit each month.

That's a gross rental yield of 8% which is actually pretty decent for BTL these days.

If it's a repayment mortgage you have then only the interest portion is deductible when calculating profit. Also, when the mortgage term ends (if it is a repayment mortgage) then both your profit and cash flow will improve because the capital will be repaid and therefore there will be no more interest to pay.

If it's an interest only mortgage then what is your repayment vehicle for the capital?

loll_l wrote: »

For my next investment my thoughts are to buy a more expensive property, put around a 20k to 25k deposit down, and get a longer (25 year) mortgage so that the mortgage payments stay lower. I saw a flat in Leeds for £130k which is already tenanted and fetches £750 rent per month. As mortgage payments for this flat would be around £450 per month that would be £300 profit per month before deducting costs/fees etc.

This Leeds property has a gross rental yield of 6.9% so whilst still decent for a BTL these days it's not as good as your other property.

Taking the mortgage over a longer period will improve your cash flow but that doesn't necessarily make the property more profitable than your other one because you will end up repaying more interest.

Again, depending on whether or not the mortgage is repayment or interest only will make a difference as to how you treat the mortgage payments when calculating your profit.

I'm curious as to why the current landlord is selling the Leeds property because (s)he is actually getting a reasonable return so what's the catch? Is there a problem with the property itself or the tenant or is the area going rapidly downhill? Does the sitting tenant have an AST or do they have an AT or some other kind of regulated tenancy?

loll_l wrote: »

The flat in Leeds is the best yield I have come across so far but there may be other areas and types of accommodation that provide an even better yield than this…. I haven’t got time to search every type of property in every town/city/village in the UK…. Hence me coming on this forum for advice

From what you've written I'm not entirely convinced you're calculating your yields and profits correctly. You'd be hard pushed to find rental yields better than 7% or 8% unless you go for a really undesirable area and/or undesirable tenants. For example, I've seen properties in Govanhill advertised with yields of 10%+ but I wouldn't touch them with a 10' barge pole.

loll_l

AnotherJoe wrote: »

I"ll ask the question again. Why do you think property, rather than some other investment choice, will secure your future better?

And a follow up question, why dont you have a pension?

All explained over my numerous posts in this thread.

loll_l

Pixie5740 wrote: »

That's a gross rental yield of 8% which is actually pretty decent for BTL these days.

If it's a repayment mortgage you have then only the interest portion is deductible when calculating profit. Also, when the mortgage term ends (if it is a repayment mortgage) then both your profit and cash flow will improve because the capital will be repaid and therefore there will be no more interest to pay.

If it's an interest only mortgage then what is your repayment vehicle for the capital?



This Leeds property has a gross rental yield of 6.9% so whilst still decent for a BTL these days it's not as good as your other property.

Taking the mortgage over a longer period will improve your cash flow but that doesn't necessarily make the property more profitable than your other one because you will end up repaying more interest.

Again, depending on whether or not the mortgage is repayment or interest only will make a difference as to how you treat the mortgage payments when calculating your profit.

I'm curious as to why the current landlord is selling the Leeds property because (s)he is actually getting a reasonable return so what's the catch? Is there a problem with the property itself or the tenant or is the area going rapidly downhill? Does the sitting tenant have an AST or do they have an AT or some other kind of regulated tenancy?



From what you've written I'm not entirely convinced you're calculating your yields and profits correctly. You'd be hard pushed to find rental yields better than 7% or 8% unless you go for a really undesirable area and/or undesirable tenants. For example, I've seen properties in Govanhill advertised with yields of 10%+ but I wouldn't touch them with a 10' barge pole.

Apologies I've been going on about "yield" when I really meant to say "cash flow"!.... told you I was a newbie!

loll_l

loll_l wrote: »

Apologies I've been going on about "yield" when I really meant to say "cash flow"!.... told you I was a newbie!

but I guess all things equal the best yield would result in the best cash flow

mchale

loll_l wrote: »

Ok I will give details...

I put down a £30k deposit and got a 10 year mortgage on the remaining £30k

You should have put down a smaller deposit & got a 25yr mort, as it gives better flexibility if your going to be a LL in the long term.

chucknorris

sparky130a wrote: »

And you still are. If we all had a magic answer to your question do you not think we'd action it ourselves?

I certainly wouldn't, I am getting out of property now, but slowly, over the next 2-4 years. I have just sold one property (subject to contract), and I have another 3 to sell (keeping one for some portfolio diversity). My wife has some properties too, she is selling one, but keeping her other 3 for about another 12 years.

EDIT: Someone pm'd me to ask why I am getting out of property, it isn't anything particularly negative about property. It is just that I am 59 next week, and we don't have children (to leave it to), so the equity has to be spent. As there is quite a lot of it, we need to start spending sooner rather than later, and from an income viewpoint I am not that much worse off moving the equity into shares, which are much more liquid, and therefore easier to spend from that asset class.

tom9980

The biggest reason not to do it is you are locking more money into one type of asset class, assuming you own your own home would buying a third be a good place to invest? what happens if the government tax multiple homes further? what happens if they shockingly go on a house building spree that hasn't been seen since the end of WW2? you open yourself to those potential risks when the yields being discussed can be achieved by investing into you pension with significant tax advantages on top. Just seems madness to solely focus on BTL.

You say you are making a small profit each month on the existing property but seem happy to hand them £40 a month which seems to be more than half of your monthly profit, i just don't understand why anyone would hand cash to an agent when its such a large percentage of their profit and the agents are taking on none of the risks. Its such a tiny profit margin and your one major expense like boiler, electrics, roof, kitchen, bathroom away from years of not making any money on it.

You are also by acquiring another property having to pay the extra 3% stamp duty and depending on your other income the new tax rules that are coming in soon are in danger of bumping your income into higher tax brackets.