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2.5% Gross Rental Yield In London


pamery
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Our landlord has recently told us he wants to sell the flat we're currently renting in London SW13

We've noticed that he's advertised it for sale at £850k. We're paying him £1800 per month in rent, so that's a 2.5% gross yield, before agency commissions, insurance, maintenance, ground rent, service charges, voids, etc.

That seems a pitifully small yield to me. Either we're paying too little in rent or he's massively overpriced the property for sale. And it seems evidence that London property really is in an enormous bubble.

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I think that what he paid for it is irrelevant. It's the rental income now versus the capital value that's important. And 2% ISAs and the stock market are surely also irrelevant. What the yield should be compared to is the cost of a mortgage to buy the same property. I'm sure that's well above 2.5%. That puts us squarely into bubble territory for house prices. And this time there are no more rate cuts possible.

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I think that what he paid for it is irrelevant.

Not really. The house I'm currently renting is worth in the region of £400k (based on comparable properties that have actually sold in my area), but I'm only paying £800pcm - works out at 2.4% yield.

But I know the LL only paid £120k for it back in the day - that's a healthy 8% return on his investment. You could argue that he should put the rent up, but when he's getting a good rate of return why be greedy and turf out a steady tenant.

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Not really. The house I'm currently renting is worth in the region of £400k (based on comparable properties that have actually sold in my area), but I'm only paying £800pcm - works out at 2.4% yield.

But I know the LL only paid £120k for it back in the day - that's a healthy 8% return on his investment. You could argue that he should put the rent up, but when he's getting a good rate of return why be greedy and turf out a steady tenant.

Don't be daft, the point of the yield calculation is to compare investments, if he sold today for the price you claim he would put that money elsewhere, comparing the yield based on today's value is the only yield that makes any sense.

If he can get better elsewhere he should sell. Fortunately for you he probably doesn't know how to do sums either.

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Our landlord has recently told us he wants to sell the flat we're currently renting in London SW13

We've noticed that he's advertised it for sale at £850k. We're paying him £1800 per month in rent, so that's a 2.5% gross yield, before agency commissions, insurance, maintenance, ground rent, service charges, voids, etc.

That seems a pitifully small yield to me. Either we're paying too little in rent or he's massively overpriced the property for sale. And it seems evidence that London property really is in an enormous bubble.

So he's figured out the economics of how to get best value from his asset.

Perhaps he's relaxed about it. Ample money either way.

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  • 4 weeks later...

Plenty of cash savings account that pay more than 2.4%, you two should go into business together :lol:

Not if you have £850k cash, they don't.

Every bank offers some sort of a high-interest savings account as a "loss leader" to attract small savers, and to minimize the amount of bad press about how they are ripping off savers. However, they are often limited in terms of the balance that you can hold, or the rate at which they can be filled. If you're looking to deposit this much cash, you'll struggle to get much more than 1%.

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Not really. The house I'm currently renting is worth in the region of £400k (based on comparable properties that have actually sold in my area), but I'm only paying £800pcm - works out at 2.4% yield.

But I know the LL only paid £120k for it back in the day - that's a healthy 8% return on his investment. You could argue that he should put the rent up, but when he's getting a good rate of return why be greedy and turf out a steady tenant.

A rational valuation by a pro puts the value of your residence at 120x monthly rental = £96000.

The OP's residence is valued at £216000.

Yeah, but everything is different.

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Not if you have £850k cash, they don't.

Every bank offers some sort of a high-interest savings account as a "loss leader" to attract small savers, and to minimize the amount of bad press about how they are ripping off savers. However, they are often limited in terms of the balance that you can hold, or the rate at which they can be filled. If you're looking to deposit this much cash, you'll struggle to get much more than 1%.

Wrong. you can get non GBP accounts paying 3-5% easily if you have that sort of cash lying about. Of course, some risk involved on a couple of angles - which is why, if I owned a house worth 850k, I would leave it there earning 2.5% rather than risk losing 100% of it for an extra few pips.

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