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BillyShears

Btl In Various Locations - Do The Numbers Add Up?

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What method would people use to calculate whether, overall, figures add up for new BTL entrants round your way. One method would be to take the 10 lowest prices for something on rightmove, and then take the ten cheapest rents for the same type of property in the same area. Then check the gross BTL yield for the average of the two columns of figures.

For studio flats in Brighton (more or less randomly chosen), the average of the ten cheapest studio/one bedroom flats is £87,615. The average of the ten cheapest rents given the same search criteria is £438. That's about 6% gross return. I was surprised at that high return, so I did the same for three bedroom properties in Brighton. Average to buy is £156,370, while average rent is £892. So that's a gross yield of 5.7%. Still lower than the expected worthwhile return of 7.5%, but not massively so.

Could be interesting to look at typical yields in various parts of the country.

Billy Shears

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12/20 rule?.....................is that the one where you must only invest if house price is less than 12 times the annual rent (yield more than 8.5%) and then sell if and when it exceeds 20 (yield drops below 5% for potential new investors)?????

Recent BTLers would say this rule only applies to interest rates lying within certain parameters and current low rates change things.

Edited by Michael

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I STR'ed in November, however I still own 2 BTL's, one bought 10years ago and another 8 years ago, before the BTL thing took off. They were purchased outright and included in an overall Investment portfolio that I put together myself, as I retired early at 40!

Now if I look at the yield compared to what I paid for the properties I'm getting around 11%. However if I'd bought these properties at todays prices I'd be getting 3.5% and that's without voids and repairs - Sorry figures don't add up for recent entrants into the market.

PS Ironic (isn't it?) I'm now a Landlord living in rented accomodation :blink:

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Guest Winners and Losers

Der, it's 22.8% of course! :P

I STR'ed in November, however I still own 2 BTL's, one bought 10years ago and another 8 years ago, before the BTL thing took off. They were purchased outright and included in an overall Investment portfolio that I put together myself, as I retired early at 40!

Now if I look at the yield compared to what I paid for the properties I'm getting around 11%. However if I'd bought these properties at todays prices I'd be getting 3.5% and that's without voids and repairs - Sorry figures don't add up for recent entrants into the market.

PS Ironic (isn't it?) I'm now a Landlord living in rented accomodation :blink:

And me! My yield would have been nearly 20% if I had held on to the property I bought 10 years ago! Now I am getting a piddly yield in Oz (forced landlord!) of about 5% and I am renting in UK. Madness, I tell you, madness! :unsure: :angry:

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I STR'ed in November, however I still own 2 BTL's, one bought 10years ago and another 8 years ago, before the BTL thing took off. They were purchased outright and included in an overall Investment portfolio that I put together myself, as I retired early at 40!

Now if I look at the yield compared to what I paid for the properties I'm getting around 11%. However if I'd bought these properties at todays prices I'd be getting 3.5% and that's without voids and repairs - Sorry figures don't add up for recent entrants into the market.

PS Ironic (isn't it?) I'm now a Landlord living in rented accomodation :blink:

What do you class as recent (overall)? For me it`s post 2003 when ironically and some may say deliberately the btl products became mainstream. <_<

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Recent BTLers would say this rule only applies to interest rates lying within certain parameters and current low rates change things.

Can't agree with this point, we're going back to the real v nominal rate argument i'm afraid.

High interest rates in the past have accompanied high inflation which means rapid growth in the rents receivable and rapid erosion of the real value of the loan. The fall in the nomial rate can not be used to argue for the fall in the yields, as ever it is the real rate that matters.

On a "back of the envelope" calculation I don't think BTL makes any sense below 9% gross yield. Below that level the net rent after agents fees, voids and repairs won't cover the mortgage interest on the property.

I am today trying to negotiate a lease on a property on what I know is a 4.6% gross yield, draw your own conclusions on what that means for house prices.

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On a "back of the envelope" calculation I don't think BTL makes any sense below 9% gross yield. Below that level the net rent after agents fees, voids and repairs won't cover the mortgage interest on the property.

Over on SP BTL's forum, I was advised that 7.5% or 8% is what should be looked at for gross yield. That still makes housing overpriced pretty well everywhere.

Given that I paid £950 per month for an end terrace in London in my last house, your 9% would value the house at ~127K. Bet the actual asking price now would be near twice that.

Billy Shears

Edited by BillyShears

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Over on SP BTL's forum, I was advised that 7.5% or 8% is what should be looked at for gross yield. That still makes housing overpriced pretty well everywhere.

Given that I paid £950 per month for an end terrace in London in my last house, your 9% would value the house at ~127K. Bet the actual asking price now would be near twice that.

Billy Shears

I've just checked what I'm paying on my rented (newbuild) flat - after Agents commission the Landlord recieves just 3.80%

Edited by cupidstunt

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I've just checked what I'm paying on my rented (newbuild) flat - after Agents commission the Landlord recieves just 3.80%

Don't worry, as we all know these newbuild flats will double in price over the next five years. Won't they?

Billy Shears

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Over on SP BTL's forum, I was advised that 7.5% or 8% is what should be looked at for gross yield. That still makes housing overpriced pretty well everywhere.

Given that I paid £950 per month for an end terrace in London in my last house, your 9% would value the house at ~127K. Bet the actual asking price now would be near twice that.

Billy Shears

Rough workings as follows:

Rent p/a (£600 p/m) 7,200

Less:

Agents fees (600)

Void period (1 month) (600)

Repairs (say) (1,000)

______

Net income 5,000

£5,000 over £7,200 equals 69% (ie net as a percentage of gross)

So lets assume as a bare minimum we need a 6% net yield to breakeven (ie to cover the mortgage interest) Alternatively if you can earn 4.5% in a safe investment then 1.5% extra seems to be a bare minimum to justify the risk involved and the owners time.

So 6% over 69% equals 8.7% as a bare minimum & I think my estimate of repairs is probably on the low side.

You say your house is probably going for double its valuation using this method, I have to say that I am in the same position. This is why I am starting to think about a 50% or greater HPC (I started out as a 30%er)

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Average to buy is £156,370, while average rent is £892. So that's a gross yield of 5.7%. Still lower than the expected worthwhile return of 7.5%, but not massively so.

Could be interesting to look at typical yields in various parts of the country.

Billy Shears

Are you sure you could achieve £892 pcm on a £156,370 property? It sounds a bit ambitious. I'm currently spending £700 a month renting a flat in SW London that is supposedly worth £170K.

Incidentally, I was an accidental landlord myself in 2001. The one-bed flat I bought for £56K in Preston the year before rented for £500 per month. The same property today would "sell" for around £120K; rents have barely moved.

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Are you sure you could achieve £892 pcm on a £156,370 property? It sounds a bit ambitious. I'm currently spending £700 a month renting a flat in SW London that is supposedly worth £170K.

The rental and purchase values were calculated by taking the ten cheapest properties on Rightmove. If the typical rental property is "better" on average than the typical cheap sale property, e.g. more likely to be in the centre of town, then the rental figure could be ambitious. And these are asking prices not actual selling or rental values. But I'd expect the estimate to not be too bad.

Billy Shears

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Near where I live there's two penthouse apartments available in a converted mill... They are both the same with one being at each end of the building.

The one at the less desirable end, over looking the town, is for sale at £174,950.

According to the BTL Income Calculator, under 'Calculate from Deposit' a max. purchase price of £174,947 requires a deposit of £26,242, a loan of £148,705 and would need a rental income of £813.

HOWEVER!

The apartment at the more desirable end of the building, overlooking the countryside, is up for rent at £650/month – And that includes the service charge.

Maybe letting property out is a good thing if you bought when prices were low, but how anyone can expect to buy a property now and get a decent rent on it is beyond my understanding. It's simple... The reason people are renting is because the can't afford to buy, and if they can't afford the repayments on a mortgage they can no sooner afford massive rents. You can only rent a property out for a price that those who can't afford to buy can afford to pay.

Going back to the BTL Income Calculator and assuming both apartments are identical, and taking into account that the rent on one is £650/month, the other should be for sale at £139,833 – Not £174,950!

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Maybe letting property out is a good thing if you bought when prices were low, but how anyone can expect to buy a property now and get a decent rent on it is beyond my understanding. It's simple... The reason people are renting is because the can't afford to buy, and if they can't afford the repayments on a mortgage they can no sooner afford massive rents. You can only rent a property out for a price that those who can't afford to buy can afford to pay.

...but that's just it...the figures don't add up!

I've linked this before,but am doing it again as it fits in nicely with this topic.

Here is your average new BTL Investor. He (and many like him) are going to find the harsh realities of life very soon! I hope I (and others) have saved him a lot of money!!!

http://forums.moneysavingexpert.com/showthread.html?t=161446

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...but that's just it...the figures don't add up!

I've linked this before,but am doing it again as it fits in nicely with this topic.

Here is your average new BTL Investor. He (and many like him) are going to find the harsh realities of life very soon! I hope I (and others) have saved him a lot of money!!!

http://forums.moneysavingexpert.com/showthread.html?t=161446

From the money saving expert thread above:

Some lenders have pulled out of buy to let mortgages on new build apartments due to developers offering cash back incentives that leave the lender with effectively a 100% mortgage on the property. If a developer is offering all sorts of incentives on a site such as 2 years fixed rental income, you need to make sure that the rental figure being offered is actually real and can be achieved after this period.

I have just sold two apartments for clients who bought of plan 18 months ago. One has managed to get back what they paid for it, its only cost them the 12 months mortgage payments as they were unable to rent it & the other has lost £10k plus the 12 months mortgage payments as he was also unable to rent it out. Nearly forgot the £1000 p.a. management fees.

Are the asking prices on the new build right for the area. The landlords I dealt with recently could have bought a two bedroom & three bedroom house respectivley, in the area for what they bought, a one bed & a two bed apartment. Two bed houses locally rent for £425 & three beds rent for £475-500 (they needed to achieve £475 on the 1 bed apartment & £525 just to cover costs).

Try to find out, if possible, how many other investment buyers have bought in the development. I know of one development where the builder is boasting that he has sold 90% of the apartments to investors. Where are the tenants coming from for all these apartments? Tenants may be able to play landlord of against each other to get the monthly rental figure down.

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The owner of this one has been trying to sell it for a while, looks like they have decided to let it, but carry on trying to sell it:

http://www.rightmove.co.uk/viewdetails-110...a_n=14&tr_t=buy

I must admit I don't know how to work out the yield. It would rent for about 650 a month. Any, er, investors here interested?

It's the first time I've seen one of these - in a BTL hotspot - come up for sale as "Investors Only", in the same week, another one appeared like this.

These properties were hitting highs of around 169k - 179k two years ago, last year there was a fair crop of them for sale and they did eventually sell when they got down to OIRO 150 - 155k including property identical to this one. Thus I think it's fair to say that if this one was marketed at 150k it would get a sale.

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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% +
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      • Even
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      • up 5%



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