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LuckyOne

Is This An Arbitrage Opportunity?

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I am beginning to wonder whether there is an arbitrage opportunity in the property market. If one exists, I know that markets eventually close them although I expect it to take a long time in the property market.

Let's pretend for a moment that you want to live in a home in a very nice part of London that rents for £ 1000 a week. At a rental yield of 4%, it would cost you £ 1,300,000 to buy.

At the same time, there are properties in some not so nice parts of London that you can buy with rental yields of 10% (http://auctions.savills.co.uk/lond_Current..._lot.asp?pos=25 for example yields 13.1% at the guide price) with long term rental agreements with local councils.

Assuming 40% for taxes and expenses, you will require £ 1,666.67 per week in gross rental income from these properties to pay the rent on your home. At a rental yield of 10%, this will cost you £ 866,666.67.

There is clearly some risk to the correlation between rent for your home and your investment properties but it looks to me like higher end London homes are overpriced by about 1/3 relative to the cost of sourcing the rental cost to live in them from less desirable areas of London.

Can this situation continue for a very long time? If you believe that a home is just somewhere to live and that you have to pay for it somehow in as cheap and low risk a way as possible, does it make sense to buy high yielding investment properties with 5 year tenancy agreements with local councils in one part of town to pay your own housing costs in a different, low rental yield part of town?

We keep hearing about cash rich, savvy buyers. Is this a better strategy to protect against the downside while not losing too much if there is an upside compared to either buying the more expnsive house outright or not owning any property assets at all?

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Cash rich and savvy buyers eh?

What are the chances that those folk have never heard of Japan's property boom and subsequent bust?

Japanese_House_Price_Index.gif

If you are looking at a 4% yield there are a lot of other, safer assets and investments.

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I am beginning to wonder whether there is an arbitrage opportunity in the property market. If one exists, I know that markets eventually close them although I expect it to take a long time in the property market.

Let's pretend for a moment that you want to live in a home in a very nice part of London that rents for £ 1000 a week. At a rental yield of 4%, it would cost you £ 1,300,000 to buy.

At the same time, there are properties in some not so nice parts of London that you can buy with rental yields of 10% (http://auctions.savills.co.uk/lond_Current..._lot.asp?pos=25 for example yields 13.1% at the guide price) with long term rental agreements with local councils.

Assuming 40% for taxes and expenses, you will require £ 1,666.67 per week in gross rental income from these properties to pay the rent on your home. At a rental yield of 10%, this will cost you £ 866,666.67.

There is clearly some risk to the correlation between rent for your home and your investment properties but it looks to me like higher end London homes are overpriced by about 1/3 relative to the cost of sourcing the rental cost to live in them from less desirable areas of London.

Can this situation continue for a very long time? If you believe that a home is just somewhere to live and that you have to pay for it somehow in as cheap and low risk a way as possible, does it make sense to buy high yielding investment properties with 5 year tenancy agreements with local councils in one part of town to pay your own housing costs in a different, low rental yield part of town?

We keep hearing about cash rich, savvy buyers. Is this a better strategy to protect against the downside while not losing too much if there is an upside compared to either buying the more expnsive house outright or not owning any property assets at all?

Could be possible but current rent levels are not guaranteed, especially in London. London yields have always looked very favorable to the rest of the country and even a few years before the peak it made much more sense to buy in London based on yields than anywhere else but I believe London rental values are very vulnerable if this recession deepens as likely.

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Could be possible but current rent levels are not guaranteed, especially in London. London yields have always looked very favorable to the rest of the country and even a few years before the peak it made much more sense to buy in London based on yields than anywhere else but I believe London rental values are very vulnerable if this recession deepens as likely.

I don't see yields being that much different in London

http://www.findaproperty.com/media/rental-...ndex_Aug_09.pdf

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I am beginning to wonder whether there is an arbitrage opportunity in the property market. If one exists, I know that markets eventually close them although I expect it to take a long time in the property market.

Let's pretend for a moment that you want to live in a home in a very nice part of London that rents for £ 1000 a week. At a rental yield of 4%, it would cost you £ 1,300,000 to buy.

At the same time, there are properties in some not so nice parts of London that you can buy with rental yields of 10% (http://auctions.savills.co.uk/lond_Current..._lot.asp?pos=25 for example yields 13.1% at the guide price) with long term rental agreements with local councils.

Assuming 40% for taxes and expenses, you will require £ 1,666.67 per week in gross rental income from these properties to pay the rent on your home. At a rental yield of 10%, this will cost you £ 866,666.67.

There is clearly some risk to the correlation between rent for your home and your investment properties but it looks to me like higher end London homes are overpriced by about 1/3 relative to the cost of sourcing the rental cost to live in them from less desirable areas of London.

Can this situation continue for a very long time? If you believe that a home is just somewhere to live and that you have to pay for it somehow in as cheap and low risk a way as possible, does it make sense to buy high yielding investment properties with 5 year tenancy agreements with local councils in one part of town to pay your own housing costs in a different, low rental yield part of town?

We keep hearing about cash rich, savvy buyers. Is this a better strategy to protect against the downside while not losing too much if there is an upside compared to either buying the more expnsive house outright or not owning any property assets at all?

Guide prices are reserves

Ezpect auctions to sell for 20% more then guide price unless there is a big problem.

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