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

Generali

Gorgeous_George wrote: »

If I don't have my BTL valued, what is it worth? I paid £15.5K in 2001 and it's worth about £80K I guess. I don't know if it would sell.

Unlike shares, I'd need to subtract EA and solicitor fees for selling and a few months' void would be likely if I was to offer vacant possession. Then there's CGT. I might end up with a reasonable profit but would it bring me £5K per year?

I know my yield isn't 35%. It might be 7% but who cares? Not me and not my tenant. I have an income of £5K and my tenant has the best LL in the world.



GG

Yield is a comparative measure. If you're happy with the cash flow that you have from your investment then (as the Assie would say) ONYA!!!

If you're happy with the cashflow that you're getting then you're doing well. It's always worth considering what you could earn elsewhere however.

Vincenzo

Generali wrote: »

Yield is measured vs market price. It's a tool more usually used to measure the relative prices of shares or bonds.

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.

Yields are used as the primary comparison method in commercial property investment and by larger investors in residential property. They are an essential tool in comparing properties with themselves and against other investments such as gilts, shares and cash.

The yield reflects risk and investor sentiment as well as the relationship between income and capital value. If an investor is willing to buy a property off a yield of 3.5% (this was happening in commercial property c. 2 years ago), it shows that the investor is making assumptions about rental growth. Generally secondary investments are sold off higher yields and primary investments are sold off lower yields, reflecting the higher risks of the secondary market.

These principles are exactly the same for residential property, whether you choose to recognise them or not.

You could use a discounted cash flow analysis but this involves a large number of assumptons when considering a purchase. Not least about the rate of capital growth and income.

Lotus-eater

Vincenzo wrote: »

The yield reflects risk and investor sentiment

Is this not the biggest problem facing recent BTL buys?
If you have a very low or negative yield and you may need the money in the next ten years, or you don't effectively want your investment sum to shrink in the next few years (this is if you suddenly believe the market will fall, I think alot of BTLers are sitting with their heads under the covers hoping the bad man will go away) then eventually you will want to sell. Once the sentiment changes wholesale, thats when we will have lots of BTL properties on the market imho. Atm not many believe it will happen.

Generali

Vincenzo wrote: »

Yields are used as the primary comparison method in commercial property investment and by larger investors in residential property. They are an essential tool in comparing properties with themselves and against other investments such as gilts, shares and cash.

The yield reflects risk and investor sentiment as well as the relationship between income and capital value. If an investor is willing to buy a property off a yield of 3.5% (this was happening in commercial property c. 2 years ago), it shows that the investor is making assumptions about rental growth. Generally secondary investments are sold off higher yields and primary investments are sold off lower yields, reflecting the higher risks of the secondary market.

These principles are exactly the same for residential property, whether you choose to recognise them or not.

You could use a discounted cash flow analysis but this involves a large number of assumptons when considering a purchase. Not least about the rate of capital growth and income.

Presumably, yield works better as a comparative measure for commercial property because the costs of ownership are far less.

If you're renting a shop or an office to someone you don't have to look after the boiler, white goods etc.

The main point stands though which is that yield is a measure of the current income derrived from an asset divided by current value.

Gorgeous_George

I'd be comfortable comparing yields between properties. If I was selling one, I might sell the lowest yielding property but only if everything else was equal.

I would not be so comfortable comparing BTL yields to those of shares, bonds or ISAs etc.

GG

Lotus-eater

"I would not be so comfortable comparing BTL yields to those of shares, bonds or ISAs etc."
Out of interest, why not?

Gorgeous_George

Lotus-eater wrote: »

"I would not be so comfortable comparing BTL yields to those of shares, bonds or ISAs etc."
Out of interest, why not?

I think it's like comapring apples with oranges. As previously stated, selling a house incurs significant costs and CGT. Buying another one when the market sentiment improves incurs costs again.

Dumping a few shares or ISAs costs next to nothing by comparison.

So, selling my BTL and buying another at a later date could incur the following costs:

£600 Solicitor to sell
£1,500 EA
£200 mortgage redemption fees
£500 Survey on new property
£1,000 mortgage arrangement fee?
£600 Solicitor to buy
£1,500 for three months' void when selling
£500 for a void when buying

There'll be more but that's enough for now (£6,400). Then there's the stress.

GG

Lotus-eater

But they are all investments, all the bad things that come with having a BTL need to be taken into consideration when you are thinking about investing your money.

Zammo

It must be fantastic for all you BTLers making an extra £25 a month from rent. Pity then that your flats are losing £1000's off their "value" every month.

Gorgeous_George

My 4 bedroom BTL house makes more than £25 per month:rotfl:. If it loses £1K per month, it will worth £20K in 5 years and my yield will be huge. Maybe I'll buy another when prices crash.

Get over yourself.

GG