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the_duke_of_hazzard

Is There A Rule Of Thumb Re Relative Value Of Renting/buying?

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I'm looking at the possibility of buying or renting in W2, and was wondering whether there's a good rule of thumb in calculating the costs of ownership in property renting/buying.

Obviously, renting is cheaper (cost of ownership is almost free), but with property there's ground rent, upkeep, building maintenance etc..

In other words, given a monthly rental cost and a borrowing interest rate, at what point does it become sensible to buy?

To make it simpler I'm prepared to allow the assumption of fixed interest rates for the foreseeable future and total income security matching inflation.

Any ideas?

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The old one, I have proposed before.

Look at the Rent, c.f. £250 per week

add three zeros, so: Pds 250,000 is the equivalent Purchase price,

that yields an approximate 5% (with 2 weeks of voids per annium)

By that reckoning, I think it might be worth buying in W2. I'm looking at 2-bed flats. What do others think?

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Give us some figures, Duke

You can try going to www.ononemap.co.uk, going to W2 and putting in 1350 or rental and up to 300 to buy.

Buying gives quite a few flats (that look like BTLs, actually).

http://www.foxtons.co.uk/search?submit_typ...r_nhgt000123345

http://www.fish4.co.uk/iad/homes/advert?adId=5050193

http://www.rightmove.co.uk/viewdetails-997...pa_n=1&tr_t=buy (DEF a BTL)

(and a few more)

whereas renting at 1350 gives just this place:

http://www.propertyfinder.com/2/pf/propert...ailsKey=7208504

and fairly little above that in what is traditionally quite a let-ey area.

Incidentally, I'm aware that if BTLs are exiting that means that rents will fall - won't they?

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You can try going to www.ononemap.co.uk, going to W2 and putting in 1350 or rental and up to 300 to buy.

Buying gives quite a few flats (that look like BTLs, actually).

http://www.foxtons.co.uk/search?submit_typ...r_nhgt000123345

http://www.fish4.co.uk/iad/homes/advert?adId=5050193

http://www.rightmove.co.uk/viewdetails-997...pa_n=1&tr_t=buy (DEF a BTL)

(and a few more)

whereas renting at 1350 gives just this place:

http://www.propertyfinder.com/2/pf/propert...ailsKey=7208504

Incidentally, I'm aware that if BTLs are exiting that means that rents will fall - won't they?

D,

Am wondering if 1 and 3 might be at the Royal Oak end of Gloucester Terrace? It might explain the cheaper price as that tube isn't as great as Lancaster Gate or Paddington. Also wondering if you know the lease length of any of them? I'm curious about Westbourne Terrace one as that seems like good value in the current market. As mentioned in pm to you this area is so heavily invested that I'm sure prices have further to fall. You know the wonderfully characterless canalside developments in Paddngton ? 60% are owned by foreign investors and Merryn Somerset Webb (also a local) has pointed out on a couple of occassions in The Times that there's loads of them sitting empty. Yes rents may go down in this area but perhaps many LLs will get out altogether and purchase prices will fall further. What do you think you will you do? Try and drive a hard bargain on a rental (if you need to move) round here for a year or two, or try and buy?

and fairly little above that in what is traditionally quite a let-ey area.

LL

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Bubb gave u the UPPER number.

Apply the 12-20 rule.

A flat is a 'buy' when its 12x the yearly rental take.

Its a defo 'sell' when it hits 20x the rental yield yearly.

So a £12,000 a year rental becomes a very good buy at 12k x 12 = 144k, call it 150 for cash. Which rather strabgely is what 1 beds in W2 would be selling for, if we had just experienced the govt proclaimed roi for the last 6 years, rather than the real rate.

If it ever got to 12k x 20 = 240k, sell sell sell (which is what all the pro landlords did 2003-ish).

BETWEEN those numbers, its up to you. I'd expect to see the 12 x multiplier before the 20 x again

Edited by CrashIsUnderWay

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Try and drive a hard bargain on a rental (if you need to move) round here for a year or two, or try and buy?

and fairly little above that in what is traditionally quite a let-ey area.

LL

Yeah, we do need to move (baby on the way, saw the first scan last week!). I'm thinking of asking our (good) landlords if they have other property we can move to without too much fuss (ie swap over the properties, and I have enough liquid cash to offer a year's rent in advance.

What kind of discount do you reckon I should ask for?

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That formula makes sense to me.

I sold my flat on 250 x monthly rental equivelent.

To my mind, a fair price for it would be 120 x rental, maybe a tad more.

According to Estate Agents windows the house we are renting would be marketed at about 26 x the rent we are paying. I reckon it has got to be 'worth' no more than 140 x rent - if that.

Above valuations based on gut instinct and no more.

Edited by paradox

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LOL. You'll get called a Troll soon. :lol:

Not for the first time ;-)

Bubb gave u the UPPER number.

Apply the 12-20 rule.

A flat is a 'buy' when its 12x the yearly rental take.

Its a defo 'sell' when it hits 20x the rental yield yearly.

So a £12,000 a year rental becomes a very good buy at 12k x 12 = 144k, call it 150 for cash. Which rather strabgely is what 1 beds in W2 would be selling for, if we had just experienced the govt proclaimed roi for the last 6 years, rather than the real rate.

If it ever got to 12k x 20 = 240k, sell sell sell (which is what all the pro landlords did 2003-ish).

BETWEEN those numbers, its up to you. I'd expect to see the 12 x multiplier before the 20 x again

I was looking at it from the point of view of taking on a fixed rate mortgage for ten years or so and the resultant monthly outgoing. My original query was about the hidden costs that you have to factor in (ground rent, upkeep, etc.)

On that basis it was looking pretty good value. My assumption was that if rates stay low, then prices are likely to stall, but if rates rise I'm protected, and that wages would go up enough to cover the rent. As I'm a reasonably skilled and experienced software developer with management experience I assume I can get some kind of decent job even in a recession... I hope correctly!

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You know the wonderfully characterless canalside developments in Paddngton ? 60% are owned by foreign investors and Merryn Somerset Webb (also a local) has pointed out on a couple of occassions in The Times that there's loads of them sitting empty.

Yeah, I do know that area. Unfortunately they may be empty and characterless, but they ain't cheap! See ononemap.co.uk for details.

Also, I had to visit that area for work - it would be living next to an office block...

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That formula makes sense to me.

I sold my flat on 250 x monthly rental equivelent.

To my mind, a fair price for it would be 120 x rental, maybe a tad more.

According to Estate Agents windows the house we are renting would be marketed at about 26 x the rent we are paying. I reckon it has got to be 'worth' no more than 140 x rent - if that.

Above valuations based on gut instinct and no more.

Properties across the uk generally rent out for a 5% pa rental yield (or a monthly rent of a 240th of the value)...........give or take a third............but prior to this boom when IRs were consistently higher ......12% yields (or monthly rent of 100th of the property's value) were more common..................

Rental yields have always fluctuated as House prices have always been more volatile than rents

.

Edited by Michael

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Yeah, I do know that area. Unfortunately they may be empty and characterless, but they ain't cheap! See ononemap.co.uk for details.

Also, I had to visit that area for work - it would be living next to an office block...

:lol: or perhaps living in one. They aren't cheap right now but the point I was trying to make is that no way are these paying investments. Now there are a lot for rent soon there will be a lot for sale and prices will drop. Of course you pay a premium for being central but I've watched how crazy its gotten around here for the last 9 years. Re: discount when I started living in this flat my discount for paying annually worked out at about 13% as I've stayed here 9 years it is now a hell of a lot more (around 30%) but my landlord doesn't have a mortgage on this building it was bought and paid for in the 60s so he's happy to just have the regular annual rent and not have the hassle of finding new tenants. There might be other opinions on the renting thread but I would be really bullish as what do you have to loose? If you've been with them a while and they know you're good tenants why not ask for 30-25 % and see what happens. That may be crap advice as I have no idea how unique my situation is!!

LL

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Yeah, we do need to move (baby on the way, saw the first scan last week!). I'm thinking of asking our (good) landlords if they have other property we can move to without too much fuss (ie swap over the properties, and I have enough liquid cash to offer a year's rent in advance.

What kind of discount do you reckon I should ask for?

If you have good landlords I would explain the circumstances and just ask if they have anything to exchange into without offering a big advance payment. If you have in turn been a good tenant you might be surprised what they will do (if they can) to keep you.

I would seriously suggest staying as liquid as possible in case there are (god forbid) any complications with your family changes.

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  • 302 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% +
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      • up 5%



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