It's a funny old world - BTL's are prospering!

mystic_trev

Lotus-eater wrote: »

Is the 2.6% against the value of it now?

Yes correct! As I can get more than 5% in the Bank I decided to 'hedge my bets' keep one and sell the other.

mystic_trev

jimc wrote: »

As a matter of interest what is the current yield versus the 1998 price?

As explained above, the Property has nearly quadrupled in value, hence the drop in yield.

WTF?_2

teabelly wrote: »

Property yields are misleading though as the ROI should be what it actually costs you to buy in the first place. Not many buy with 100% cash so saying the yield is only 5% or whatever is meaningless. The actual yield should be rental profit after costs and taxes and would vary year on year depending on what you paid out and received.

If you buy with no money down and cash back then you have an infinite ROI while you have a tenant paying more than the mortgage

Sort of - if you are holding an asset worth x for business purposes you have to look at how to get the best returns for it.

If you could make 150k free and clear from selling the house you'd have to look at how much that could return in other investments. If you could make more money from selling the house and banking the profits for hefty interest payments, it'd be a no-brainer IMO.

However, you also have to remember that selling the house would like result in a large capital gains tax payment plus selling fees, so it's not as straightforward as comparing yield on the value of the house.

As you say, as long as you have a rent-paying client covering mortgage repayments you are quids in. It's just that the crazy prices of the last few years have made this a far from normal situation.

Tassotti

mystic_trev wrote: »

As explained above, the Property has nearly quadrupled in value, hence the drop in yield.

The yield only drops if you have remortgaged to the max surely??

Yield, surely, is what you have paid (or amount invested) versus the income.

If it has quadrupled since 1998 (incidentally when the HPCers first started talking about a crash) what might it be worth in another 10 years time.

Maybe your yield would go into negativity the way you look at it, but, if are you still making rental profit on the property, and it is worth four times as much..?!?!

Will your 5% equal that..maybe..

Tass

Lotus-eater

I think the idea is if prices fall then he is hedging his bets and selling one house. That is alot of money to be invested in one thing. Yield drops because in theory he has the value of the house (minus selling costs) invested.

m00m00

to understand why yield is measured this way, you have to have a basic understanding of opportunity cost.

Tassotti

okay..I don't know what Mystic Trev paid but for example

1 - MT paid 50K for property in 1998
Rental £400 per month

Yield 9.6%

It is now worth 200K

If yield is taken as current valuation, then 2.4% yield, BUT has he remortgaged that property to full valuation?!?!

If not yield is still 6%.

If so, has he put money in other ventures...

see what I mean?

Comparing past events, the biggest crash has been 27% , assuming a crash of 30% the property would be worth 140,000

Disregarding tax, it is still a profit of 90K (before tax).

And after a crash..what happens..a boom..so MT could quadruple his investment again.

Dunno, maybe you economists on here can tell me that that is not a good investment

geoffky

Wikipedia defines denial as the 'first state of coping with loss'. Often times, people deny something that they know is true because acknowledging the existence of a situation is simply too painful.
This seems to be exactly what is happening with the housing bubble. There are many individuals and organizations that are going out of their way to deny the existence of a housing bubble within the U.S.
Many of these optimists have ties to the industry-they are real estate professionals, mortgage brokers, banks, and investors. They make money when housing is up and lose money when housing is down.
For awhile, they were able to ride a financial wave that seemed unbreakable. Housing was a 'can't go wrong investment'. People who knew nothing about the industry were delving in with the hope that they could make a quick buck. And it worked for some-up to a point.
Then, the market took a bad turn. In some areas, home prices had escalated beyond what was reasonably affordable for the average buyer. In fact, home prices appreciated so fast that they outpaced rents and wages. This was the first obvious sign that a housing bubble had formed.
The second came with the rapid increase in the number of people using adjustable rate mortgages and interest only loans. This proved that the average buyer could not afford the average home with an average salary. For the dream of homeownership to morph into a reality, buyers need to look to the short term only.
Lenders also played their part to keep the ball rolling, loosening strict regulations and encouraging buyers to participate in creative financing as a way of purchasing homes that weren't affordable under normal circumstances. Adjustable rate mortgages and interest only loans became the norm. In some regions, like the Bay Area in California, more than 80 percent of mortgages taken out in recent years fell into the ARM category.
The third, but not the final indicator came when trusted insiders, like the National Association of Realtor's David Lereah and Fed Chairman Alan Greenspan, flat out scoffed at the existence of the housing bubble, and encouraged people to buy, buy, buy before it was too late. This was most unusual, because a good investment shouldn't need such touting. If the investment is really that good, people will buy into it without pressure.

IveSeenTheLight

mystic_trev wrote: »

........and this from BBC



http://news.bbc.co.uk/1/hi/business/7279154.stm

If you read the article it's talking about would be BTL LL's as opposed to the OP's point about exisiting BTL LL's

Generali

Tassotti wrote: »

The yield only drops if you have remortgaged to the max surely??

Yield, surely, is what you have paid (or amount invested) versus the income.

If it has quadrupled since 1998 (incidentally when the HPCers first started talking about a crash) what might it be worth in another 10 years time.

Maybe your yield would go into negativity the way you look at it, but, if are you still making rental profit on the property, and it is worth four times as much..?!?!

Will your 5% equal that..maybe..

Tass

Yield is measured vs market price. It's a tool more usually used to measure the relative prices of shares or bonds. It's meaningless to measure your current income against what you bought the house for - if you bought in 1962 you could be looking at a yield of hundreds of percent. What does that prove? It shows you that rents have risen since 1962, nothing more. It doesn't help you work out where you are now.

FWIW, I think it's too crude a tool to be used for measuring the relative merits of houses. BTL is a business not an investment and a measure like free cash flow including a cost of carry for the equity portion in the house is much more useful. Including a cost of carry measures how much interest you are forgoing by holding on to the house, free cash flow shows you how much cash you're generating after costs from the rest of it.