Selling a house I rent out

dolce_vita

alan44 wrote: »

The key here is what the yield is on your new sale price, which I assume is more than you paid for it (your current yield).

Yield = (monthly rent * 1200) / purchase price.

This is not quite correct.

Yield = (monthly rent * 1200) / current price

alan44

dolce_vita wrote: »

This is not quite correct.

Yield = (monthly rent * 1200) / current price

It is correct, as it's a measue of how much return you're getting on your money. If a property rents for £500pcm and will cost me 100k to buy, then the yield is 6%. It doesn't matter if it's actually worth £120k, as I don't receive any more in rent or get any more money back.

dolce_vita

alan44 wrote: »

It is correct, as it's a measue of how much return you're getting on your money. If a property rents for £500pcm and will cost me 100k to buy, then the yield is 6%. It doesn't matter if it's actually worth £120k, as I don't receive any more in rent or get any more money back.

You are incorrect my friend.

What you are talking about is not yield, but cashflow.

Yield is calculated on the current cost of the property (or any other investment for that matter) not what you paid for it.

alan44

dolce_vita wrote: »

You are incorrect my friend.

What you are talking about is not yield, but cashflow.

Yield is calculated on the current cost of the property (or any other investment for that matter) not what you paid for it.

You obviously don't make your money from property. Just think what the word 'yield' actually means for God's sake. This is only the second time I've been on, and I've already seen 5 factually incorrect statements from yourself.

dolce_vita

alan44 wrote: »

You obviously don't make your money from property. Just think what the word 'yield' actually means for God's sake. This is only the second time I've been on, and I've already seen 5 factually incorrect statements from yourself.

What I have said before is correct.

Yield is calculated using the current cost of buying a property now not on what you paid for it.

So, when house prices rise, yields are reduced, (and vice-versa), regardless of whether you bought at different price.

PasturesNew

alan44 wrote: »

It is correct, as it's a measue of how much return you're getting on your money. If a property rents for £500pcm and will cost me 100k to buy, then the yield is 6%. It doesn't matter if it's actually worth £120k, as I don't receive any more in rent or get any more money back.

It is correct that yield is based on the current value, not the price it was bought at.

If a house cost £100k and is now worth £200k then you have to factor in the potential for that equity to be earning money elsewhere. So it needs to be accounted for too.

dolce_vita

PasturesNew wrote: »

It is correct that yield is based on the current value, not the price it was bought at.

If a house cost £100k and is now worth £200k then you have to factor in the potential for that equity to be earning money elsewhere. So it needs to be accounted for too.

At last. Someone who knows what they're talking about.

Strapped

I hate to admit it but...


I agree with dolce vita

bigjoe

alan44 wrote: »

It is correct, as it's a measue of how much return you're getting on your money. If a property rents for £500pcm and will cost me 100k to buy, then the yield is 6%. It doesn't matter if it's actually worth £120k, as I don't receive any more in rent or get any more money back.

You are wrong mate I'm afraid. It does matter if it is worth £120k. Imagine if it is worth £120 million now (to stretch an example) - would you still be talking 6% yield?

alan44

bigjoe wrote: »

You are wrong mate I'm afraid. It does matter if it is worth £120k. Imagine if it is worth £120 million now (to stretch an example) - would you still be talking 6% yield?

Without picking on you specifically, it doesn't matter, because I don't own it yet, and am PAYING £100k for it. That is the yield. That may change, but not before I buy it.

Otherwise it being worth more than you pay for it lowers the yield, which it clearly doesn't.

If I can buy it for £100k and it's worth £100k, the yield is 6%. Some people might consider that. However if I can buy it for £100k, but it's worth £120k, the yield is now only 5%, which no one in their right mid would touch.

I think what seems to be confusing people is that the extra £20k only exists on paper: it's not real money. Once I refinance that's different. It doesn't matter if it's now worth £120m on paper: I still invested £x to buy it, and I'm still getting £6k pa return on it. I can't do anything with the nominal £100m+, because it doesn't exist till I either sell or refinance. So yes I would still be talking about 6%.

Here are some links that show it is purchase/sale price (i.e. real money)

http://www.propertyhotspots.net/view.php?content=1&id=149
"But does the professional investor include capital growth? – NO! This is because it is unknown even though the professional investor may have an inkling""

http://www.investinproperty.com/CMS.asp?LV1=36&LV2=37
"So simply put, Yield is the return on your investment expressed as a percentage of what you put in!"

http://www.beatingthepropertyclock.info/Book/Yield/

http://66.102.9.104/search?q=cache:PT4YcZwYFlcJ:www.abacus.org.au/credit_unions/docs/buying_property.pdf+%22calculating+yield%22+property&hl=en&ct=clnk&cd=14
"Youcan however, quickly calculate gross yieldon an investment property proposition byusing the following formula:1. Calculate the annual income bymultiplying your expected weekly rentby 52. 2. Calculate what percentage of thepurchase price this annual income is(by dividing the annual income by thepurchase price then multiplying thisfigure by 100) and you will knowyour gross yield"