Buy to let yields

[Toilet Duck]

Afternoon all,

For those of you in the BTL world, how much importance do you put on yield? If you have a large BTL portfolio and its your sole source of income, then I appreciate the yield is obviously of utmost importance.

However, if you purchase a BTL property as a long term investment completely seperate to your main income/employment, how important is it to work out/worry about the yield? For example, if you buy a property with the intention of getting the mortgage paid of as quickly as possible so that you have a "free" property for when you retire (so you can sell it or carry on renting it out so you get a monthly income to supplement a pension) and aren't bothered about making a profit now, does it actually matter what the monthly yield is?

I'm looking at a nice flat in a good area, but using an online yield calculator it gives a yield of approx 3.43% with me putting a 30% deposit down and mortgaging the rest. With my limited knowledge, I know that 3.43% is a poor yield. But using "overpayment calculators" found online, my calculations suggest that setting up a monthly overpayment would mean the mortgage could be paid off in approx 18 years without it costing me anything (when I say that I mean the rental income will cover both the mortgage and overpayments, obviously it doesn't take into account any repair costs, periods where the property is without a tennant etc).

Many thanks in advance

[LeoSayer]

It's very important.

With any investment you want to maximise your return and minimise risk. That's business. In purely practical terms, a higher yield could enable you to pay off the mortgage years earlier.

However, don't focus purely on initial yield. You may well predict that rents and/or property values may rise in the area you want to buy in, turning a poor yield into a very good investment.

[caprirob]

I would focus on buying a low maintenance property with a strong and long term rental potential.

many cheap properties are rubbish - you will get 1 bad tenant after another and end up having to redecorate and re-carpet every 6 months and have repeated void periods.

if you want Yields you cant really beat student lets for a shared house on a room by room basis but they are very high maintenance both in terms of actual maintenance and tenant hassle.

I have 2 BTL's - one had been fantastic, the other has been bloody awful.

[jonny70]

Toilet Duck said:

Afternoon all,

For those of you in the BTL world, how much importance do you put on yield? If you have a large BTL portfolio and its your sole source of income, then I appreciate the yield is obviously of utmost importance.

However, if you purchase a BTL property as a long term investment completely seperate to your main income/employment, how important is it to work out/worry about the yield? For example, if you buy a property with the intention of getting the mortgage paid of as quickly as possible so that you have a "free" property for when you retire (so you can sell it or carry on renting it out so you get a monthly income to supplement a pension) and aren't bothered about making a profit now, does it actually matter what the monthly yield is?

I'm looking at a nice flat in a good area, but using an online yield calculator it gives a yield of approx 3.43% with me putting a 30% deposit down and mortgaging the rest. With my limited knowledge, I know that 3.43% is a poor yield. But using "overpayment calculators" found online, my calculations suggest that setting up a monthly overpayment would mean the mortgage could be paid off in approx 18 years without it costing me anything (when I say that I mean the rental income will cover both the mortgage and overpayments, obviously it doesn't take into account any repair costs, periods where the property is without a tennant etc).

Many thanks in advance

is the mortage your looking at a BTL one? and if it is what rate is ?

[Countdown]

I'm getting between 3% and 6% net.

Main reason for buying them was to have something for the kids when they get married (and move out )

Up norf it really only makes sense (IMO) if you can buy at <£80k

[z4chris99]

35% but it helps when you purchased in 1990's

[caprirob]

Getting just over 3% net on mine. Bought at completely the wrong time but thankfully now benefitting from lifetime tracker interest rates that current BTL buyers can only dream of.

[Toilet Duck]

jonny70 said:

is the mortage your looking at a BTL one? and if it is what rate is ?

Yes, its a BTL mortgage. I've been speaking with a mortgage advisor who has given me an idea of whats available, and he's also given me a lot of advice/help during my search for a property. I don't know what the exact interest rate will be on the mortgage I eventually sign up to, so what I did for the purposes of working out a yield using online calculators was to go on moneysupermarket.com and put my figures in (deposit/mortgage amount etc), and use the interest rate on a reasonable mortgage deal that came up (I think it was something like a 3.69% discounted rate for 3 years, then going up to 6.1%). I appreciate thats not going to give me the exact yield, but it gave me a rough idea at least

z4chris99 said:

35% but it helps when you purchased in 1990's

Lol, I can only dream of that

[Sir Bagalot]

OP, have you factored in the service charge into your calcs?

[jonny70]

Toilet Duck said:

jonny70 said:

is the mortage your looking at a BTL one? and if it is what rate is ?

Yes, its a BTL mortgage. I've been speaking with a mortgage advisor who has given me an idea of whats available, and he's also given me a lot of advice/help during my search for a property. I don't know what the exact interest rate will be on the mortgage I eventually sign up to, so what I did for the purposes of working out a yield using online calculators was to go on moneysupermarket.com and put my figures in (deposit/mortgage amount etc), and use the interest rate on a reasonable mortgage deal that came up (I think it was something like a 3.69% discounted rate for 3 years, then going up to 6.1%). I appreciate thats not going to give me the exact yield, but it gave me a rough idea at least

z4chris99 said:

35% but it helps when you purchased in 1990's

Lol, I can only dream of that

Im confused , your getting a rate of 3.69% yet the yield is only 3.4% , how much is the arrangement fee?

Surely that doesnt make any sense to do so , allright you have 30% deposit but once you pay arrangement fee for mortgage then the mortgage ,service charge , void rentals , landlord insurance, corgi cas cert, then you pay tax on all your profits and somehow with the profit you will pay the mortgage off within 18 years? Im confused.

Also what happens when the boiler breaks down or the flat needs repairs/renovated etc

You do realize that you capital payments arent tax free? so the interest only part you dont pay tax on but you pay on your profits ie the part left over that you make the repayment on.

I dont know what area you are in but most of the country has flat capital growth if not falling

[98elise]

6-7% on houses in the south east.

I really wouldn't touch anything under that. What happens when interest rates eventually go up?

[Octoposse]

5% on the single studio flat we rent out. Bought for cash (although at opportunity cost of having paid off our main mortgage by now). Can be hard work at times for the money - the odd telephone call at 3am isn't ideal when you both work fulltime and have a toddler. I'll be doing maintenace on it tomorrow.

But it's mainly a long-term investment . . . share of freehold in sought-after postcode. And it has a garage (which we don't rent out).

[Kudos]

Octoposse said:

5% on the single studio flat we rent out. Bought for cash (although at opportunity cost of having paid off our main mortgage by now).

Surely common sense and prudent tax planning would be to clear mortgage in your home and put mortgage on rental?

[steve1]

It all depends on your circumstances and why you want the rental, is it for long term investment, ( it certainly won't be for short term gain ), or is it for an extra income, or a bit of both.
Just bought mine, paid cash, as it was doing naff all in the bank, or anywhere else, I don't have a mortgage, I took early retirement, so I just wanted an extra income to supplement my pension, and hopefully in 5-10years time have a little nest egg to draw on.
Currently getting 10.75% yield, which I think is quite good.

[Octoposse]

Kudos said:

Octoposse said:

5% on the single studio flat we rent out. Bought for cash (although at opportunity cost of having paid off our main mortgage by now).

Surely common sense and prudent tax planning would be to clear mortgage in your home and put mortgage on rental?

You're probably right - just seemed like a good idea/lower risk profile at the time. However, I assume our fully flexible mortgage (we overpay every month) is at a lower interest rate than a BTL?

[oldnbold]

I've got 4 BTL's. Three of them are student lets, two yeild 8.5% and the other 12%. Our other property is a normal 3 bed family home, let to a family which yields 6%.

Cant say the student lets are any more hassle than the family home really, despite what others have said.

With my pension the income from the houses has allowed the wife and I to both retire at 51.

[Kudos]

Octoposse said:

You're probably right - just seemed like a good idea/lower risk profile at the time. However, I assume our fully flexible mortgage (we overpay every month) is at a lower interest rate than a BTL?

If you've no mortgage on btl you have to pay income tax on all of the income from rental. If you had a mortgage on it rather than your main home, you can offset the interest on the btl against rental income.

Is your residential mortgage cheaper than the btl? I've no idea - it's your mortgage!

[AndrewO]

That yields too low. I remember back a good few yrs ago a work colleague bought a BTL that cost him money each month, it didn't go well.

Stick to a formula, if the numbers don't work let it go.

5% and above, in the South East rental is strong so its poss to factor increases in to the maths.

[GEWAGON]

where would be the best place to source BMV Houses or projects that value can be added to, around woodford essex and surrounding areas estate agents only seem to offer over priced low yielding properties or stuff that once be refurbished will be lucky to make a couple of grand out of, it seems despite we are in a recession houses prices are still over priced IMO or I am missing something is their any genuine places to source good deals, not pay now and we will find you a bmv type ?

[Countdown]

GEWAGON said:

where would be the best place to source BMV Houses or projects that value can be added to, around woodford essex and surrounding areas estate agents only seem to offer over priced low yielding properties or stuff that once be refurbished will be lucky to make a couple of grand out of, it seems despite we are in a recession houses prices are still over priced IMO or I am missing something is their any genuine places to source good deals, not pay now and we will find you a bmv type ?

Auctions. It helps if you know the local area.

http://www.allsop.co.uk/3/auctions-home