What are residential rental yields really like...

edgex

Studio flat, central Birmingham

On the market for £149,950, previously £155k (so lets say £150k)
Currently rented at £595 PCM (£7140 p/a)

7140/150000*100 = 4.76% yield

but!
Ground Rent - £175 P/A, Service Charge - £1,791.52
so £2000 p/a
Agent fees of 10% (£700)

7140-2700 = 4400

4400/150000*100 = 2.96% yield


Simply including some of the costs massively reduces the yield.
When developers & estate agents advertise yields, I wonder which calculation they do :think:

westernpromise

The gross, obviously!

buglawton

Have you included the freehold being sold off to a fraudster organisation that overcharges you for every change of tenant? Read the lease with a jewellers microscope before you buy.

chucknorris

edgex wrote: »

Studio flat, central Birmingham

On the market for £149,950, previously £155k (so lets say £150k)
Currently rented at £595 PCM (£7140 p/a)

7140/150000*100 = 4.76% yield

but!
Ground Rent - £175 P/A, Service Charge - £1,791.52
so £2000 p/a
Agent fees of 10% (£700)

7140-2700 = 4400

4400/150000*100 = 2.96% yield


Simply including some of the costs massively reduces the yield.
When developers & estate agents advertise yields, I wonder which calculation they do :think:

Property is a long term investment, it isn't just about the first year's yield.

As westernpromise stated 'obviously the gross yield'. The gross yield doesn't tell you much about the individual property's profitability, but what it does give you is a way to compare the returns of different properties, (at different values and rents).

I have only rarely used a letting agent (when the rental market was particular difficult, and also when I was away on holiday), and even then it was only to find tenants (at about 5%), I have always managed my properties myself.

Do not forget that unless you are a cash buyer, your initial investment was not the price of the property plus acquisition costs, it was only the deposit plus the acquisition costs (plus possibly furniture and maybe some initial work). This seriously increases the yield.

Cornucopia

Freehold property may be a better alternative, or at least give more control over costs.

It can also be more appealing to lenders. Borrowing funds can allow yields to be increased through leverage.

Also, what a lot of people don't realise is that yields vary - a lot. A typical Central London property will probably have a tiny yield, whereas something a bit more affordable in a major town or city away from the immediate London influence can have a significantly higher yield.

https://www.totallymoney.com/buy-to-let-yield-map/

itwasntme001

Don't forget void periods which will differ from area to area (less desirable areas tends to have more void periods). On the flip side the costs you mention can be used to offset income tax so the net yield figure is not very accurate at all.

tacpot12

After five years, I'm getting 6.1% return after tax on a ex-local authority leasehold flat in a city an hour and a half north of Birmingham. Luckily there have been no voids and no bad tenants, but we have had to replace mattresses, microwave, and the washing machine because it is rented fully furnished.

The Local Authority is the freehold owner and this means that the service charges, ground rent and buildings insurance are all reasonable, but they have been proactive with repairs and improvements to the building and communal areas so we have also had to pay for fire doors, roofline repairs, and flooring and double glazing for the communal area.

6.1% after tax still seems a good return.

itwasntme001

tacpot12 wrote: »

After five years, I'm getting 6.1% return after tax on a ex-local authority leasehold flat in a city an hour and a half north of Birmingham. Luckily there have been no voids and no bad tenants, but we have had to replace mattresses, microwave, and the washing machine because it is rented fully furnished.

The Local Authority is the freehold owner and this means that the service charges, ground rent and buildings insurance are all reasonable, but they have been proactive with repairs and improvements to the building and communal areas so we have also had to pay for fire doors, roofline repairs, and flooring and double glazing for the communal area.

6.1% after tax still seems a good return.

Is that return on invested capital or property equity or on the value of the property?