London Landlords? Rental yields?
Discussion
How does the maths work out? I was just watching some property program where the bint was suggesting a 10% annual yield from rent.
When I look at the prices of appartments and rents in docklands its not even close. A good 2 bed appartment is 400k or so. Rent is about 400 a week for the whole flat.
So thats a yield of 20k over a year with only 2 weeks vacancy. Thats closer to 5% than the 10% she suggested. Why would anyone want to rent our property in docklands? Is everyone banking on property appreciation 5% above the curve?
I just can't work out how it works effectively.
I think the only way you make money out of renting is if the value of the property goes up.
If we are talking about London, most areas are dropping in price so that won't help.
Added to that you can stick the money in an account and get over 5% for doing nothing, cannot see why thinking person would do it today.
Maybe I am missing something?
If we are talking about London, most areas are dropping in price so that won't help.
Added to that you can stick the money in an account and get over 5% for doing nothing, cannot see why thinking person would do it today.
Maybe I am missing something?
saw the programme too.
10% is top end , most standard lets are around 5% gross in the South East and London. maybe 6-7 % if you let out rooms individually.
A friend of mine does a lot of Property Dev. in the NOrth East - and can just about hit 9-10% ...... but only by buying a run-down property cheaply , then adding more bedrooms and/or splitting the property into separate units after considerable building work - and he has tons of experience to keep his costs down.
edit : yields are before rental voids , agents fees , maintenance, repairs, insurance and tax etc. ......etc. ..... so basically uneconomic in the SOuth EAst where there is no capital appreciation as well.
>> Edited by alfaman on Tuesday 18th October 21:17
10% is top end , most standard lets are around 5% gross in the South East and London. maybe 6-7 % if you let out rooms individually.
A friend of mine does a lot of Property Dev. in the NOrth East - and can just about hit 9-10% ...... but only by buying a run-down property cheaply , then adding more bedrooms and/or splitting the property into separate units after considerable building work - and he has tons of experience to keep his costs down.
edit : yields are before rental voids , agents fees , maintenance, repairs, insurance and tax etc. ......etc. ..... so basically uneconomic in the SOuth EAst where there is no capital appreciation as well.
>> Edited by alfaman on Tuesday 18th October 21:17
Ribol said:
I think the only way you make money out of renting is if the value of the property goes up.
If we are talking about London, most areas are dropping in price so that won't help.
Added to that you can stick the money in an account and get over 5% for doing nothing, cannot see why thinking person would do it today.
Maybe I am missing something?
Well you are missing out that the fact its a geared investment. You are making 5% on what is largely someone elses money. Also you get capital appreciation in the property.
Its the London bit I'm having trouble with.
Thanks for the comment on the Northern yields, thats interesting. That chap with his house on the A40 in the program was doing pretty well yieldwise, but I doubt the house will ever be worth anything so maybe thats where he loses.
DanH said:
Gearing only works if cost-of-debt is less than the ( yield less void less agents fees ) - so at 5% yield gearing doesnt help when debt cost is also around 5%
Aren't you assuming a 100% mortgage there?
Agree that the figures don't look good though...
If your yield and debt cost are equal - doesnt really matter that much if its 100% or 50 % -
( oops , ok I forgot .... you will get some tax relief on the interest payments .... but my point is that gearing really only becomes a powerful way of increasing returns when the yield is above your debt cost )
DanH said:
Ribol said:
I think the only way you make money out of renting is if the value of the property goes up.
If we are talking about London, most areas are dropping in price so that won't help.
Added to that you can stick the money in an account and get over 5% for doing nothing, cannot see why thinking person would do it today.
Maybe I am missing something?
Well you are missing out that the fact its a geared investment. You are making 5% on what is largely someone elses money. Also you get capital appreciation in the property.
Not really. You are paying interest on the money you've borrowed and the returns mentioned in property ladder this evening were straight return on investment rather than an ebitda type return.
However, I agree about the capital app although I can't really see there being much at in the short term.
So back to your premise, 5% on 400k is probably not worth it at the moment. I've been asking the same question around here in Surrey evaluating them against my Florida rental returns which are in the 14-16% return pa.
>> Edited by tinman0 on Tuesday 18th October 21:34
Gearing comes into it massively - 10 or 20% cash down could net a landlord 10% on £500k (with £400k being someone elses money).
People are also increasingly banking on capital appreciation - granted, property should always rise over a long enough period, but people have forgotten the negative equity days - IMO of course. In some cases the 'yield' is breaking even and the profit comes when it's time to sell. Some landlords in for a shock perhaps?
A huge number of people got into buy to let when the market was lower and are now letting a 250k house which perhaps only owes them 90k - that is a good investment!
I remember back in Nottingham when I was a student - it was reconed by the local landlords that you could have your house paid for in 6 years of student income! A chap I rented from owned about 40, which he had accumulated over about 15 years.
Now if you want to look at madness - look at major london commercial investments. The yield is perhaps 7% with a quality tenant BUT look at the life expenctancy of major office building in London - 25 years max before they get demolished and rebuilt! I just can't make the figures work on that one - certainly not with the financial risks involved!
People are also increasingly banking on capital appreciation - granted, property should always rise over a long enough period, but people have forgotten the negative equity days - IMO of course. In some cases the 'yield' is breaking even and the profit comes when it's time to sell. Some landlords in for a shock perhaps?
A huge number of people got into buy to let when the market was lower and are now letting a 250k house which perhaps only owes them 90k - that is a good investment!
I remember back in Nottingham when I was a student - it was reconed by the local landlords that you could have your house paid for in 6 years of student income! A chap I rented from owned about 40, which he had accumulated over about 15 years.
Now if you want to look at madness - look at major london commercial investments. The yield is perhaps 7% with a quality tenant BUT look at the life expenctancy of major office building in London - 25 years max before they get demolished and rebuilt! I just can't make the figures work on that one - certainly not with the financial risks involved!
maxf said:
A huge number of people got into buy to let when the market was lower and are now letting a 250k house which perhaps only owes them 90k - that is a good investment!
Yes, that was a good investment and a lot of people made a lot of money.
I suspect anyone trying it today will be out of pocket for the next few years though.
on Extreme LTV's you will not make good yields on rental.
Do not buy buy to lets in marginal markets with 15% deposits. 25% are what you should be aiming at and then you should make a small return on the rents as well as appreciation. On a rising market, sod the rental yields and get as many properties as you can.
Do not buy buy to lets in marginal markets with 15% deposits. 25% are what you should be aiming at and then you should make a small return on the rents as well as appreciation. On a rising market, sod the rental yields and get as many properties as you can.
I too was aghast at Sarah's assertion on a 10% yeild! How!The best I can manage in London is 6%. As (and if!) the value of the property increases and the rents remain stable then the yeild will rise but this will no longer happen in the short term.
I have made sure that there is a reason other than general house inflation that will increase the value of my propety-ie some improvement/planned redevelopment in the area of purchase. (see www.canadawater-southwark.com/)
I have made sure that there is a reason other than general house inflation that will increase the value of my propety-ie some improvement/planned redevelopment in the area of purchase. (see www.canadawater-southwark.com/)
kamal996 said:
I too was aghast at Sarah's assertion on a 10% yeild! How!The best I can manage in London is 6%. As (and if!) the value of the property increases and the rents remain stable then the yeild will rise but this will no longer happen in the short term.
but the trick was to put 900 bedrooms in a house that was originally 4 bedrooms.
I let a property out and with todays market you are only looking at a 5% yeld but if the property was bought at the right time as i did you pay lees for the property and the rentle value has risen as mine did so i recieve a 8% rentle yeld you cant include the value of the property becuse the market is up and down depending on demand and untill you sell the property the value is only an estimate (its not real money)
Now if you work and are paying tax you will be liable to pay tax on the income generated on the rent the best way around this is to set your mortage above the rent so you are efftivley making over payments every month you can either try to pay the mortage off early or release the equity with out paying tax and buy a shiney new car.
If im wrong about any of the above please inform me as i am building my finacial status around the theory.
Now if you work and are paying tax you will be liable to pay tax on the income generated on the rent the best way around this is to set your mortage above the rent so you are efftivley making over payments every month you can either try to pay the mortage off early or release the equity with out paying tax and buy a shiney new car.
If im wrong about any of the above please inform me as i am building my finacial status around the theory.
IS200RJR said:
I let a property out and with todays market you are only looking at a 5% yeld but if the property was bought at the right time as i did you pay lees for the property and the rentle value has risen as mine did so i recieve a 8% rentle yeld you cant include the value of the property becuse the market is up and down depending on demand and untill you sell the property the value is only an estimate (its not real money)
Now if you work and are paying tax you will be liable to pay tax on the income generated on the rent the best way around this is to set your mortage above the rent so you are efftivley making over payments every month you can either try to pay the mortage off early or release the equity with out paying tax and buy a shiney new car.
If im wrong about any of the above please inform me as i am building my finacial status around the theory.
Erm your wrong... you only compare the interest cost with regards to rental. Everything else, less expense etc is taxable
IS200RJR said:
I let a property out and with todays market you are only looking at a 5% yeld but if the property was bought at the right time as i did you pay lees for the property and the rentle value has risen as mine did so i recieve a 8% rentle yeld you cant include the value of the property becuse the market is up and down depending on demand and untill you sell the property the value is only an estimate (its not real money)
Now if you work and are paying tax you will be liable to pay tax on the income generated on the rent the best way around this is to set your mortage above the rent so you are efftivley making over payments every month you can either try to pay the mortage off early or release the equity with out paying tax and buy a shiney new car.
If im wrong about any of the above please inform me as i am building my finacial status around the theory.
Further, you should learn to spell rental
i've been renting houses for about 9 years and i'm always fascinated by the figures branded about. most % returns seem to be based on 12 months rental at £x hundred per month. the reality of the situation is you rarely let houses for 12 months at a time, and even if you do, you have expenses, certainly over longer periods of time.
over the last 9 years for me the rule of thumb seems to be that on average a house lets for 11 months per year and over the course of a year you need to spend at least one months rent on repairs / wear and tear etc. typically you also have agency management fees on top.
ignoring these costs / issues produces irrelevent rates of return. if i did so on my property, the return would be 5% on the current value of the property (figure is 12% on price actually paid).
however taking reality into account produces the real life return of 3.5% (8.5% on purchase price).
people glam up figures to make points, but the truth as always is never quite as rosey.
if anyone else rents outt on here (i'm sure there are loads) i'd be interested to know your actual long term returns based on purchase price and also current price...
over the last 9 years for me the rule of thumb seems to be that on average a house lets for 11 months per year and over the course of a year you need to spend at least one months rent on repairs / wear and tear etc. typically you also have agency management fees on top.
ignoring these costs / issues produces irrelevent rates of return. if i did so on my property, the return would be 5% on the current value of the property (figure is 12% on price actually paid).
however taking reality into account produces the real life return of 3.5% (8.5% on purchase price).
people glam up figures to make points, but the truth as always is never quite as rosey.
if anyone else rents outt on here (i'm sure there are loads) i'd be interested to know your actual long term returns based on purchase price and also current price...
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