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London-loser

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I've just been over to Singing Pig and read this thread that Dr Bubb is active on:

Singing Pig yields

I have no intention of registering and starting to post there but I have to say I am FUGGIN amazed at how these supposedly super-sharp property investors do not know how to calculate a rental yield.

Take an example. A Landlord that I do a bit of business with was chatting about a number of properties in an area that he is keen on that in  my opinion are absolute crackers and STILL rent all day long at good money:

Bought for:             £35,000 including fees

Current Val:            £85,000

Current Rent:          £450 pcm

Mortgage:              £0 as paid down loans

Service chg:           £10 pcm

Voids & maint:        Say of rent 10% per annum

These are currently giving a return of 13.6%

Are they for real?

An £85k property with £450pcm rent... and they THINK the yield is 13.6%?

:lol:

Jesus Christ. If you calculate your yield based on the price you paid x many years ago rather than on today's price it must be quite easy to see things looking pretty good.

My father bought his property 20 years ago and I reckon he could probably get a 50% yield on this basis.

:lol:

Lisa's contribution is priceless:

I am not for one minute decrying the importance of yield - it is crucial I'm just offering a contrarian perspective.

You have a property worth £100k in today’s market (assume its a genuine valuation we can all agree on.)

You bought it for £60k 5 years ago and its rental has remained unchanged at £500pcm.

Your yield on purchase was 10%.

Your yield in today’s market is 6%.

Now assume we have an almighty crash and it falls in price by 30% to £70k.

Your yield has just gone up to 8.57%.

Yippee or not!!

Yup, you've lost £30k... YIPPEE!

With "investors" like these, it is easy to see why there is little sanity in house prices at the moment. :blink:

Edited by London-loser

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Technically they are correct - your yield is your return on your investment and if u are getting nearly £5k per annum for £35k laid out, then that is over 13% - in addition to that their is a paper capital gain of £50k which could be realised - however, if reinvested, the chances are that yield on it would be nearer 4.5%

the counter argument is of course that anyone buying for £85k now would get 3/8ths of that (give or take) as a yield and risk serious capital depreciation

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Wait till they hear yields are rising, they're gonna get mighty excited over there.

Of course it's not because rents are going up, nope, they're a part of BOE CPI figures.

It's for something else, gee, golly, I just can't seem to think what it is right now. ;)

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Technically they are correct - your yield is your return on your investment and if u are getting nearly £5k per annum for £35k laid out, then that is over 13% - in addition to that their is a paper capital gain of £50k which could be realised - however, if reinvested, the chances are that yield on it would be nearer 4.5%

the counter argument is of course that anyone buying for £85k now would get 3/8ths of that (give or take) as a yield and risk serious capital depreciation

Are you sure?

The yield is the rent as a proportion of the CURRENT value NOT the amount you put in some time back in history.

For example, if I bought BT shares when they floated (1982?) and calculate my yield today based on the current annual dividend and the price I paid back then (adjusted as necessary for changes in the number of shares issued) then my "yield" will be significantly higher than the "yield" quoted in today's Financial Times. Would I be right or would the FT?

This might be a number that fascinates the shareholder... but that would only be because he does not know how to analyse investments. This is a classic private investor FUG UP (taking comfort from past good investments rather than analysing the current position).

I remember BBB used to quote "yields" on this basis and tell us all on HPC how prices couldn't possibly crash because he has double digit yields... on that basis the price can rise 10,000,000% and the yield is STILL double digit... so prices cannot possibly crash... repeat to fade.

I don't have a problem with the idea that the rent is 13.6% of the amount initially invested... but it is NOT the yield. It is an interesting way of viewing the world (as it invariably allows you to conclude the property price is not too high) but it is NOT the yield.

If you re-calculate the yield as prices rise (based on the price at the time) you will see what the yield actually is... and it is falling, falling, falling - to 5.58% based on the numbers in their thread. This is not much more than cash for the extra hassles of being a landlord... doesn't sound good to me, perhaps I'll stick with the 13.6% number and feel much better (are we back on to Dr Bubb's thread about people preferring comforting lies?).

Dr Bubb,

That "investment competition" thread is quite bizarre... like you say, massive debts taken on with "gains" made on the basis of what look like fantasy figures to me. I think you are playing a rigged game - they can go and see what your investments are worth if they want to whereas there is little proof the property guy has actually "made" anything (in the same way that the people on Property Ladder always seemed to have "sold to my neighbour" etc I suspect he can "sell" his properties on to some friendly other company etc).

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There is one thing that needs to be taken into account and that is CGT as in a lot of cases it will not be possible to switch from money in housing to money in a bank account/shares/whatever without some sort of tax penalty and disposal charges..

What should be compared is the current yield based on Resale Value-CGT-Costs compared to yield with that net money will yield elsewhere.

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Technically they are correct - your yield is your return on your investment and if u are getting nearly £5k per annum for £35k laid out, then that is over 13% - in addition to that their is a paper capital gain of £50k which could be realised - however, if reinvested, the chances are that yield on it would be nearer 4.5%

the counter argument is of course that anyone buying for £85k now would get 3/8ths of that (give or take) as a yield and risk serious capital depreciation

No they are not - that is the historic performance. The investment that they are making is not what they paid in the past but what they are foregoing by not selling.

It's a brave investor who prices in further capital gains so they really should look at the income.

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There is one thing that needs to be taken into account and that is CGT as in a lot of cases it will not be possible to switch from money in housing to money in a bank account/shares/whatever without some sort of tax penalty and disposal charges..

What should be compared is the current yield based on Resale Value-CGT-Costs compared to yield with that net money will yield elsewhere.

I agree these issues are indeed important in deciding whether to sell or not.

However, the whole point of calculating yields in the "old economy" way is to see whether the investment stacks up as an investment - does it "wash its own face" or not?

If you calculate a current yield as 5.5% or so you might conclude that is insufficient compensation (over a cash deposit) for the extra risks/efforts of being a landlord (potential maintenance costs, potential capital gains/losses etc). Only THEN do you start to look at whether the costs (loss of future CGT taper relief etc) make it unattractive to sell.

The actual sell calculation can be pretty tricky (especially since people have to estimate future capital gains/losses) but the yield calculation is really quite simple and gives a very good idea of where you are at TODAY.

I don't understand how anyone who does not know the position TODAY can take an intelligent decision on what to do next. It is a very good investment discipline to ask yourself regularly whether your investment stacks up TODAY (rather than reminding yourself what a good investment it was when you first bought it).

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Are you sure?

Yes.

The yield is the rent as a proportion of the CURRENT value NOT the amount you put in some time back in history.

The yield you would get if you invested NOW is based on the current value.

The yield you get is dependent upon 2 things:

- the price you pay for the asset;

- the income you receive from the asset.

Hence, the yield you would get is the income from an asset over the price at any given time.

For example, if I bought BT shares when they floated (1982?) and calculate my yield today based on the current annual dividend and the price I paid back then (adjusted as necessary for changes in the number of shares issued) then my "yield" will be significantly higher than the "yield" quoted in today's Financial Times. Would I be right or would the FT?

You would both be right because you are quoting different things.

If you paid £1 in 1982 and get 20p every year, your yield would be 20% of your investment. That is because you only paid out £1 per share and that hasn't changed, whereas you are still getting the current dividend of 20p.

If you paid £10 today, you would still only get 20p dividend. Your yield would be 2%

The yield you see for shares in the FT is based upon the last declared dividend and the share price at close the previous day. If a share rises or falls from day to day it's yield will change too until the next dividend is declared, at which point any yield will be based upon the new dividend.

This might be a number that fascinates the shareholder... but that would only be because he does not know how to analyse investments. This is a classic private investor FUG UP (taking comfort from past good investments rather than analysing the current position).

??????????????????????

I remember BBB used to quote "yields" on this basis and tell us all on HPC how prices couldn't possibly crash because he has double digit yields... on that basis the price can rise 10,000,000% and the yield is STILL double digit... so prices cannot possibly crash... repeat to fade.

Sorry - this doesn't make any sense. The yield on any house investment will change as the price does (or the rental income). It WON'T stop the price moving up and down though.

I don't have a problem with the idea that the rent is 13.6% of the amount initially invested... but it is NOT the yield. It is an interesting way of viewing the world (as it invariably allows you to conclude the property price is not too high) but it is NOT the yield.

It is the yield. If you put £35k in the bank and got £5k per annum, what would your yield be? I would guess just over 13%.

If you re-calculate the yield as prices rise (based on the price at the time) you will see what the yield actually is... and it is falling, falling, falling - to 5.58% based on the numbers in their thread. This is not much more than cash for the extra hassles of being a landlord... doesn't sound good to me,

In this instance,:

person A paid £35k for the asset - they are getting a return of £5k (give or take) - their yield is 13.5%(ish)

person B paid £85k for the same asset - they are getting a return of £5k - their yield is under 6%

the yield is different because person B paid far more than person A yet the income would be the same.

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person A paid £35k for the asset - they are getting a return of £5k (give or take) - their yield is 13.5%(ish)

person B paid £85k for the same asset - they are getting a return of £5k - their yield is under 6%

the yield is different because person B paid far more than person A yet the income would be the same.

If this measure of yield is used then surely it's pretty useless as a performance indicator?

How can you do like for like comparisons between different assets or similar assets bought at different times.

Surely the only (reliable) calculation for Yield is income/(current realisable asset value).

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The rate of income generated from a stock in the form of dividends, or the effective rate of interest paid on a bond, calculated by the coupon rate divided by the bond's market price. Furthermore, for any investment, yield is the annual rate of return expressed as a percentage.

Investors can use yield to measure the performance of their investment and compare it to the yield on other investments or securities.

In some situations, yield may not be a true return measure because it doesn't account for capital gains or losses.

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If this measure of yield is used then surely it's pretty useless as a performance indicator?

How can you do like for like comparisons between different assets or similar assets bought at different times.

Surely the only (reliable) calculation for Yield is income/(current realisable asset value).

That is correct if you are looking at which asset to buy NOW!

Imagine at the time of purchase, the property at £35k would have had income of £2k (this is just an example) - at the time of purchase, the yield would have been 5.7%

Imagine now (15 years later) the income is £5k - it might now be 'worth' £85k but the owner still only paid £35k for it - therefore his yield on his £35k outlay is 13%+

If he sold it to someone else for £85k, they would still get £5k income but this would have been against an outlay of £85k - the new owners yield would be back near 5.7%

This is one of the fundamentals behind holding dividend stocks for the longterm - the dividend increases year on year (as does your income) but the amount you paid doesn't change

Where using yields against asset classes is useful for comparison could be as follows:

it is 2001

you have £100k to invest - interest rates are low and property prices still low(ish)

you put it in the bank, getting 2.75% interest per annum - your simple yield is 2.75%

you buy a BTL property for £100k - you get £4,200 after costs for the year - your yield is 4.2%

it is 2005

you have £100k to invest

you put it in the bank, getting 4.75% interest per annum - your simple yield is 4.75%

you buy a BTL property for £100k - you get £3,200 after costs for the year - your yield is 3.2%

which is the better investment at present?

as you can see, you can compare asset classes for best yield now - you can also see why BTL might have made sense in 2001 but just doesn't pay now

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If this measure of yield is used then surely it's pretty useless as a performance indicator?

How can you do like for like comparisons between different assets or similar assets bought at different times.

Surely the only (reliable) calculation for Yield is income/(current realisable asset value).

easy way to look at it

you buy flat 1 in a block for £35k in 2000

person A buys no. 2 (identical flat) for £85k in 2005

both flats generate £5k income in 2006

who gets the best return on their money?

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:) You have, for example, 100K tied up in a property returning 5K per annum. That is a 5% yield.

How you came to have 100K of property may well have a bearing on your overall situation (buying it for 40K before the boom versus buying recently with a 100K mortgage) but it has NOTHING to do with what the current gross yield is. The yield is a % of the CURRENT value regardless of what it cost you to buy.

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:) You have, for example,  100K tied up in a property returning 5K per annum. That is a 5% yield.

How you came to have 100K of property may well have a bearing on your overall situation (buying it for 40K before the boom versus buying recently with a 100K mortgage) but it has NOTHING to do with what the current gross yield is. The yield is a % of the CURRENT value regardless of what it cost you to buy.

You refer to CURRENT yield but yields change on a day to day basis based upon the market price of the asset and the return it gives. Look in the FT for yield of a stock today and look again in a month. unless you have chosen something very different the yield will have changed.

One of the secrets of good investment is to buy when the price of the asset is low and the yield is already high.

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The end is nigh,

With respect, I think you fail to understand yield yourself.

You might want to visit this site:

Investopedia - Yield

You'll notice the definition of yield includes the "market price"... not the price the asset was bought at some time in the past.

I agree that your calculations (and the ones on singing Pig) are "yields" on the amount invested... but the actual yield on the investment is based on its CURRENT market price... hence, as investopedia puts it:

Investors can use yield to measure the performance of their investment and compare it to the yield on other investments or securities.

Obviously if I calculate a "yield" on my property based on the price I paid five years ago I cannot really hope to compare this against the yield on BT shares in the FT today.

By your definition, the "yield" on BT shares has an massive number of values (depending on who bought/when/at what price). The reality is that BT shares only have one value for the "yield" (ignoring gross/net etc) and it is the one quoted in the FT.

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easy way to look at it

you buy flat 1 in a block for £35k in 2000

person A buys no. 2 (identical flat) for £85k in 2005

both flats generate £5k income in 2006

who gets the best return on their money?

I'm no economist, but basic logic tells me your figures (whether right or wrong) are utterly useless as a performance indicator and I wouldn't want to use them on my investments.

The properties both have the same Market value and generate the same rent hence if yield is to have any relevance as a KPI then it must be the same. The properties are both providing a current yield of 5.89%.

who gets the best return on their money?

Clearly owner one has benefited through capital appreciation of £50K......so if you want to calculate return on original investment.......assuming:

£5K rent per annum since '00

steady appreciation from '00-'05 (19.4%)

zero capital appreciation in '06

then I suggest the return calculations would be as follows:

retuen per annum = Capital appreciation + rental yield

Owner1 2000: 19.4% + 14.29 = 33.69%

Owner1 2001: 19.4% + 11.96 = 31.36%

Owner1 2002: 19.4% + 10.02 = 29.42%

Owner1 2003: 19.4% + 8.39 = 27.79%

Owner1 2004: 19.4% + 7.03 = 26.43%

Owner1 2005: 19.4% + 5.89 = 25.29%

Owner1 2006: 0% + 5.89 = 5.89%

Owner1 average return on investment = 29% per annum

Owner2 2006: 0% + 5.89 = 5.89%

So clearly owner 1 has done better on the deal.....But the yields for both for '06 are the same

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Hi BTLO-O

I think we are both right in a way but maybe talking about slightly different things - I don't disagree with the definition you have posted but all posted definitions in this thread refer to the 'market price' - if the market price changes (which it does) then given that the income stays the same, the yield will change

in the example, where we say the yield for 2006 will be the same for either owner, that would be correct based on the current market price - however, the owner who paid £35k didn't pay the current market price so to say they are yielding 5% on their investment is incorrect - they only laid out £35k for the same income as someone laying out £85k

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Hi BTLO-O

I think we are both right in a way but maybe talking about slightly different things - I don't disagree with the definition you have posted but all posted definitions in this thread refer to the 'market price' - if the market price changes (which it does) then given that the income stays the same, the yield will change

in the example, where we say the yield for 2006 will be the same for either owner, that would be correct based on the current market price - however, the owner who paid £35k didn't pay the current market price so to say they are yielding 5% on their investment is incorrect - they only laid out £35k for the same income as someone laying out £85k

Yes I agree we are talking about slightly different concepts and I do see the point you are making BUT.........we are using the same term "yield".

Yield is an established indicator to the performance of an investment.

Using your calculation:

You put £10 in a bank account bank in 1980 and hence you now have £100 due to compounded interest.

I put £100 in a bank account yesterday.

Your bank account provides 4% mine 5%

Using your definition of "yield" you are getting 40% and i'm only getting 5%.....

Like for like who is actualy getting the better deal?

That's what yield is all about, different asset classes/valuations compared "Like for like".....make your own definition and you are on a hiding to knowhere.

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You mention that:

"BBB used to quote "yields" on this basis and tell us all on HPC how prices couldn't possibly crash "

Well he is alive and well on S-Pig, posting as "Yieldman"

Wow!

BBB (Yieldman) is talking a lot of sense over there (I just caught up on the competition thread)... maybe he did learn something over here, amid all the slanging matches.

:lol:

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The end is nigh,

With respect, I think you fail to understand yield yourself.

You might want to visit this site:

Investopedia - Yield

You'll notice the definition of yield includes the "market price"... not the price the asset was bought at some time in the past.

I agree that your calculations (and the ones on singing Pig) are "yields" on the amount invested... but the actual yield on the investment is based on its CURRENT market price... hence, as investopedia puts it:

Obviously if I calculate a "yield" on my property based on the price I paid five years ago I cannot really hope to compare this against the yield on BT shares in the FT today.

By your definition, the "yield" on BT shares has an massive number of values (depending on who bought/when/at what price). The reality is that BT shares only have one value for the "yield" (ignoring gross/net etc) and it is the one quoted in the FT.

Hi,

I prefer to look in the dictionary for definitions. www.dictionary.com

yield ( P ) Pronunciation Key (yld)

v. yield·ed, yield·ing, yields

v. tr.

To give forth by or as if by a natural process, especially by cultivation: a field that yields many bushels of corn.

To furnish as return for effort or investment; be productive of: an investment that yields high percentages.

To give over possession of, as in deference or defeat; surrender.

To give up (an advantage, for example) to another; concede.

Yield is based on a return from an initial investment, NOT current market value. I bought BA shares when they were just under £2. If i bought more at £3 would they both yield the same amount? No, I would get a higher yield on the ones I bought at £2. They have only 1 price, but varying degrees of yield depending on when I bought them and for what price.

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Hi,

I prefer to look in the dictionary for definitions. www.dictionary.com

yield    ( P )  Pronunciation Key  (yld)

v. yield·ed, yield·ing, yields

v. tr.

To give forth by or as if by a natural process, especially by cultivation: a field that yields many bushels of corn.

To furnish as return for effort or investment; be productive of: an investment that yields high percentages.

To give over possession of, as in deference or defeat; surrender.

To give up (an advantage, for example) to another; concede.

Yield is based on a return from an initial investment, NOT current market value. I bought BA shares when they were just under £2. If i bought more at £3 would they both yield the same amount? No, I would get a higher yield on the ones I bought at £2. They have only 1 price, but varying degrees of yield depending on when I bought them and for what price.

Like I say you can make any definition you want up! The established one is current valuation.

Also where from that dictionary definition did you get Original as opposed to Current ?

BTW: My post office account is "yielding" 53% interest bet no-one can beat that for a return on an ordinary savings account.....The last time I touched it was in '79 when I left £1 in it.....Tch if only I had put a £100 in it I would be rich rich rich!

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Yield is based on a return from an initial investment, NOT current market value. I bought BA shares when they were just under £2. If i bought more at £3 would they both yield the same amount? No, I would get a higher yield on the ones I bought at £2. They have only 1 price, but varying degrees of yield depending on when I bought them and for what price.

Lochy,

BA shares have ONE dividend yield.

You seem to ignore the £1 or so extra capital you have made. That's your choice but I'd say it is a mistake (precisely the point of this thread... to suggest BTLers are reaching poor conclusions about the attractiveness of their property holdings because of their inability to grasp the simple concept of YIELD).

You NOW have X many BA shares with the SAME yield, regardless of when you bought them or how much you paid for them. For example, if BA's share price is £3 and I paid £5 per share, they STILL offer me the same yield as they offer you(I've made a capital loss... but the YIELD is the yield, is the YIELD).

It is a definition set in stone, not one open to interpretation (if I might be so bold, I'd suggest dictionary.com is fine for defining "underpants" or whatever but not necessarily the best source for specific, technical financial terms).

I have no dispute that the total return on your first investment is higher than the total return on your second investment but... please... the shares YIELD the same.

I am AMAZED that this is up for dispute!

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Like I say you can make any definition you want up! The established one is current valuation.

Only on this site. I think its because people are trying to find some way to get over their jealousy about BTL'ers who bought 10 years ago and are raking it in.

Also where from that dictionary definition did you get Original as opposed to Current ?

That doesn't make sense. Can you expand?

BTW: My post office account is "yielding" 53% interest bet no-one can beat that for a return on an ordinary savings account.....The last time I touched it was in '79 when I left £1 in it.....Tch if only I had put a £100 in it I would be rich rich rich!

Well done. You invested £1 and are getting 53% yield.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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