A demonstration of ludicrous house prices...

IveSeenTheLight

A_Nice_Englishman wrote: »

Sorry, still can't quite get my head around the figures.

Are you saying that rental income would cover the interest on the mortgage, plus repayment of the capital and the interest foregone on the deposit? In that case, yes the landlord would own a property worth £200K +/- any change in the value after 25 years. If the rental income only covered the interest, he would own the property but have a debt of £160K

I am saying the rental income covers paying a Capital and Interest Mortgage.
I have two BTL's at the moment, one valued at £280K (purchase mortgage much lower) with a Rental yield of 9.38% and another valued at £197k (again purchase mortgage much lower) with a rental tield of 6.15%. Both property rental incomes cover the C&I payments and there is spare to pay for maintenance, spare months, agency finders fees etc.

Why does the rental income have to cover the interest forgone on the deposit? It's a case of analysing whether I put the money here or there as to what would be the return on the investment.
My example showed puting the deposit into a C&I mortgage against puting the same deposit into a bank.

I see some people are saying that the rental figure where they are do not add up or that there are an abundance of empty flats around. If this is the case then it is not a wise BTL investment, however there are still very strong rental markets in the UK.

If you are looking to invest in a BTL, you may need to look a little further than the end of your street.

PasturesNew

IveSeenTheLight wrote: »

I have two BTL's at the moment, one valued at £280K (purchase mortgage much lower) with a Rental yield of 9.38% and another valued at £197k (again purchase mortgage much lower) with a rental tield of 6.15%.

Are you saying the yield on £280k is 9.38% - so the rent is over £2100/month, or are you saying the yield is 9.38% on the lower mortgage? If it is the latter, then don't forget that you are "losing" up to 6.3% in a bog standard high street high interest account on the difference.

IveSeenTheLight

PasturesNew wrote: »

Are you saying the yield on £280k is 9.38% - so the rent is over £2100/month, or are you saying the yield is 9.38% on the lower mortgage? If it is the latter, then don't forget that you are "losing" up to 6.3% in a bog standard high street high interest account on the difference.

Rental yield is the annual rental income / divided by the purchase price.
So to answer you question it is on the lower mortgage.

You say I am losing 6.3% gross on the difference but you have not considered that if I sold up and put the difference into a bank, my yearly return would take 12 years to get compounded up to the current valuation of my house. I dont envisage my house to stay the same valuation in 12 years time.
You have also not considered that the capital that is being paid off by my tenants each month is more than I would receive on nett interest from puting the difference from property value to mortgage value into the bank at 6.3% gross interest
You are also not considering the extra income I receive above my outgoings.

I am extremely secure that my investments are working reasonably well for me and that maintaining my BTL is better for a long term investment and having the money sitting in a bank

tr3mor

IveSeenTheLight wrote: »

Rental yield is the annual rental income / divided by the purchase price.

It is not.

Rental yield is the rental income / current value. Otherwise it makes no sense.

Say you inherited a house bought in the 60s for £1000 and now someone is paying £800pcm rent on it. Are you saying that the yield on that property is 1000%?

IveSeenTheLight

tr3mor wrote: »

It is not.

Rental yield is the rental income / current value. Otherwise it makes no sense.

Say you inherited a house bought in the 60s for £1000 and now someone is paying £800pcm rent on it. Are you saying that the yield on that property is 1000%?

from the financial glossary website
http://www.finance-glossary.com/terms/Rental-yield.htm?ginPtrCode=00000&id=12602&PopupMode=false

Rental yield

Definition
This is what a landlord can expect to receive in rent, expressed as a percentage of the purchase price of the property..

dolce_vita

IveSeenTheLight wrote: »

Rental yield is the annual rental income / divided by the purchase price.

This is proof that BTL is for "investors" who know nothing about investing.

m00m00

that definition shows no understanding of the concept of 'opportunity cost'

Generali

IveSeenTheLight wrote: »

from the financial glossary website
http://www.finance-glossary.com/terms/Rental-yield.htm?ginPtrCode=00000&id=12602&PopupMode=false

This is what a landlord can expect to receive in rent, expressed as a percentage of the purchase price of the property..

This implies that this calculation only works at the time of purchase.

Yield is measured against current market price as it is a tool that allows one to compare the income return on different investments.

For example, you could compare the yield on shares in BP with the yield on a BTL. Adjust for risk (e.g. volitility, liquidity, reliability of income stream) and you can use the yield to help you decide which is the better investment. This only works if you use the current market price. There's no point in measuring the current dividend paid by BP to the share price years ago.

IveSeenTheLight

dolce_vita wrote: »

This is proof that BTL is for "investors" who know nothing about investing.

If it is divided by the valuation, then what is your rental yield today, tomorrow, next week, next month.

With the property prices in the last decade always rising, then the rental yields would be reducing every month unless the rent received increased.

As property prices spiralled, looking at the RY against the valuation would mean that investors would be considering selling and puting in a bank.
If I did that say two years ago, I would be signifacally worse off.

In my eyes it makes sense for the rental yield to be against the invested money.

I have 6.15% & 9.38% RY's against my purchase prices and 4.7% & 5.1% against current valuation.

My LTV are 52% & 38%.

I am very happy with my investments. They are for the long term, not by month to month

m00m00

IveSeenTheLight wrote: »

With the property prices in the last decade always rising, then the rental yields would be reducing every month unless the rent received increased.

well, guess what's been happening .....

yields have been reducing hence BTL becoming a much less attractive proposition