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Viterbi

Impersonating A Property Investor

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Recently I spotted a 2 bedroom terrace advertised for sale for 90k in a not so fashionable part of the West Midlands. I approached the owners with the intention of buying the house. I asked how much they were selling it for and when they told me 90k I looked back at them with disbelief. I then told them I was a property investor and how rental yields are worsening nowadays. The house is located in an area dominated by people in low paid semi skilled manual jobs and there is no way I would be able to offer an affordable rent from a sale price of 90k. I told the owners I would buy the house if they dropped the price to 70k (which is still overvalued) but they refused. I then asked them who on earth is going to buy the house at 90k if FTBs in the area can't afford it and investors can't make much money from it. Their reply was that the estate agents valued the house correctly and they will find a buyer at the price of 90k.

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Recently I spotted a 2 bedroom terrace advertised for sale for 90k in a not so fashionable part of the West Midlands. I approached the owners with the intention of buying the house. I asked how much they were selling it for and when they told me 90k I looked back at them with disbelief. I then told them I was a property investor and how rental yields are worsening nowadays. The house is located in an area dominated by people in low paid semi skilled manual jobs and there is no way I would be able to offer an affordable rent from a sale price of 90k. I told the owners I would buy the house if they dropped the price to 70k (which is still overvalued) but they refused. I then asked them who on earth is going to buy the house at 90k if FTBs in the area can't afford it and investors can't make much money from it. Their reply was that the estate agents valued the house correctly and they will find a buyer at the price of 90k.

I had an email conversation with an estate agents about the price of a house. When I found it was 143K which is definitely high for that area, I emailed back saying that to get a gross 7.5% yield, I would have to rent the property out for £900pcm, which I thought was unlikely. They emailed me back saying that it would likely gross £550pcm, and said that there were terraces for 105-110K which would gross about £500pcm. Still not enough really, as that's less than 5% yield. If that's the best that can be found...

I notice that the first property has now appeared on the books of another agent still at 143K.

Billy Shears

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I had an email conversation with an estate agents about the price of a house. When I found it was 143K which is definitely high for that area, I emailed back saying that to get a gross 7.5% yield, I would have to rent the property out for £900pcm, which I thought was unlikely. They emailed me back saying that it would likely gross £550pcm, and said that there were terraces for 105-110K which would gross about £500pcm. Still not enough really, as that's less than 5% yield. If that's the best that can be found...

I notice that the first property has now appeared on the books of another agent still at 143K.

Billy Shears

Couple of three bed end-terraces near me ones been on at 147K (in a not so desirable location) and another at £143K in a slightly better location. Both been on the market for about a year now. The £147K one appears on rightmove 3 times. Both are overpriced, especially considering the areas and the tiny rooms.

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A two bed flat near me is for sale with one agent at £174,950 and for rent with another at £650/month. I think that says it all. According to a BTL calculation site I looked at recently a £174,950 property should be renting out at about £820/month or alternately a property renting out at £650/month should not have cost more than £133,000. It aint adding up folks!!!

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I had an email conversation with an estate agents about the price of a house. When I found it was 143K which is definitely high for that area, I emailed back saying that to get a gross 7.5% yield, I would have to rent the property out for £900pcm, which I thought was unlikely. They emailed me back saying that it would likely gross £550pcm, and said that there were terraces for 105-110K which would gross about £500pcm. Still not enough really, as that's less than 5% yield. If that's the best that can be found...

I notice that the first property has now appeared on the books of another agent still at 143K.

Billy Shears

The trouble is that the latest batch of BTL lemmings aren't to bothered about yields, only capital apprecition, as property only ever goes up in value.

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A two bed flat near me is for sale with one agent at £174,950 and for rent with another at £650/month. I think that says it all. According to a BTL calculation site I looked at recently a £174,950 property should be renting out at about £820/month or alternately a property renting out at £650/month should not have cost more than £133,000. It aint adding up folks!!!

That's a 5.6% return for the first rent. Is this really sufficient return to make the property a good investment without capital appreciation? Over on Singing Pig I was advised that after considering agent fees, maintenance, and voids, that 7.5% to 8% should be the target yield.

Billy Shears

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Recently I spotted a 2 bedroom terrace advertised for sale for 90k in a not so fashionable part of the West Midlands. I approached the owners with the intention of buying the house. I asked how much they were selling it for and when they told me 90k I looked back at them with disbelief. I then told them I was a property investor and how rental yields are worsening nowadays. The house is located in an area dominated by people in low paid semi skilled manual jobs and there is no way I would be able to offer an affordable rent from a sale price of 90k. I told the owners I would buy the house if they dropped the price to 70k (which is still overvalued) but they refused. I then asked them who on earth is going to buy the house at 90k if FTBs in the area can't afford it and investors can't make much money from it. Their reply was that the estate agents valued the house correctly and they will find a buyer at the price of 90k.

FTB's can't afford £90k - what a joke. Even on the minimum wage, 2 people buying together could get a mortgage of around £80k and thats using the outdated 3.5x multiplier appropriate for IR's of 10%+.

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That's a 5.6% return for the first rent. Is this really sufficient return to make the property a good investment without capital appreciation? Over on Singing Pig I was advised that after considering agent fees, maintenance, and voids, that 7.5% to 8% should be the target yield.

Billy Shears

Absolutely. After voids and costs, thats the key.

My landlady makes 4.8% before costs (£140 pcm ground rent + maintennance of communal areas, 15% letting agent fees [as she lives out of the country so they gouge her], voids [none this year], maintennance [new cooker, new shower, 2 x boiler fix, new blinds]).... so I suspect that she is well in negative territory.

And just to round it off I would guess that she has made approximately 0% capital appreciation in three years, as she overpaid anyway at 2003 prices. She'd have to advertise it for what she paid and hope to achieve close. :lol::lol::lol::lol::lol:

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Absolutely. After voids and costs, thats the key.

My landlady makes 4.8% before costs (£140 pcm ground rent + maintennance of communal areas, 15% letting agent fees [as she lives out of the country so they gouge her], voids [none this year], maintennance [new cooker, new shower, 2 x boiler fix, new blinds]).... so I suspect that she is well in negative territory.

And just to round it off I would guess that she has made approximately 0% capital appreciation in three years, as she overpaid anyway at 2003 prices. She'd have to advertise it for what she paid and hope to achieve close. :lol::lol::lol::lol::lol:

Is she bothered? If I left the UK, I would do the same even if I made a loss. She is doing what most people do who emigrate, ensure they have somewhere to come back to in the UK regardless of what happens to property prices here and abroad. Maybe there are some people who are not obsessed with yields and making a fortune.

Edited by nodumsunreader

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FTB's can't afford £90k - what a joke. Even on the minimum wage, 2 people buying together could get a mortgage of around £80k and thats using the outdated 3.5x multiplier appropriate for IR's of 10%+.

Actually, minimum wage is £5.05 an hour (£9,696pa full time)

Two people on the Mcjob minimum would bring the household income to £19,392. This would give them a mortgage of £67.8k.

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I have looked at BTL in the past as a business, and decided it does not add up at the moment. Basically you can not earn a living by starting BTL now.

However, looking at it as an investment this would be the thinking:

I think house prices are going to go up in the long term

I can not buy a part of a house each month

I want to invest in housing.

Therefore I will borrow to buy a whole house now

I will get a tennant to pay the interest

I therefore only need a yield equal to my interest payments (5%)

Each month I will pay back a bit of the capital from my normal income, basically buying back a bit of the house each month.

I will take my profits through capital appreciation, not yield.

Based on this thinking, yields can be as low as interest rates. Buying to let is a mechanism to allow the landlord to buy bits of a house at a time.

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Actually, minimum wage is £5.05 an hour (£9,696pa full time)

Two people on the Mcjob minimum would bring the household income to £19,392. This would give them a mortgage of £67.8k.

You forgot to mention that the old rule was 3.5 x the higher earner, not joint earnings. If you were basing it on joint earnings I think it was a lower multiple, like 2.5. So the amount they could borrow under this rule would be even lower.

Incidentally there was a very long thread on this topic which I started a while back.

http://www.housepricecrash.co.uk/forum/ind...topic=18324&hl=

I figured they could borrow £90k but this was based on so-called "affordability" rather than an earning multiples.

frugalista

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You forgot to mention that the old rule was 3.5 x the higher earner, not joint earnings. If you were basing it on joint earnings I think it was a lower multiple, like 2.5. So the amount they could borrow under this rule would be even lower.

Incidentally there was a very long thread on this topic which I started a while back.

http://www.housepricecrash.co.uk/forum/ind...topic=18324&hl=

I figured they could borrow £90k but this was based on so-called "affordability" rather than an earning multiples.

frugalista

Some people working in shops and other McJobs don't have a regular number of hours, but work 'on demand' from day to day. This means that while they might have an hourly wage of say 5-6 pounds, they may well not work 40 hours every week. So total earnings can be less than 9K.

Billy Shears

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I have looked at BTL in the past as a business, and decided it does not add up at the moment. Basically you can not earn a living by starting BTL now.

However, looking at it as an investment this would be the thinking:

I think house prices are going to go up in the long term

I can not buy a part of a house each month

I want to invest in housing.

Therefore I will borrow to buy a whole house now

I will get a tennant to pay the interest

I therefore only need a yield equal to my interest payments (5%)

Each month I will pay back a bit of the capital from my normal income, basically buying back a bit of the house each month.

I will take my profits through capital appreciation, not yield.

Based on this thinking, yields can be as low as interest rates. Buying to let is a mechanism to allow the landlord to buy bits of a house at a time.

in addition, it is highly likely that in ten years time rents will be considerably higher, whereas the purchase price will not have changed. your rental return on capital invested should go up in the long term.

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A two bed flat near me is for sale with one agent at £174,950 and for rent with another at £650/month. I think that says it all. According to a BTL calculation site I looked at recently a £174,950 property should be renting out at about £820/month or alternately a property renting out at £650/month should not have cost more than £133,000. It aint adding up folks!!!

What would you do...

Buy or Rent ?

Interest only loan at 5% would be £825 !!

At least the owner knows renting it out is a dead loss - better to sale and get that money in the bank...

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I tried the same via email too (a while back), and today the figures for BTL are even worse.

I just don't know who is buying. FTBs on risky multiples? Or investment buyers with poor returns and negative cashflows?

There has been an upturn in the market, but it's not back to boom times! And yes, I do think this is the 'last push'...

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I think if enough people impersonate property investors and approach sellers of housing that would have been typical BTL fodder a few years ago and tell them their house is too expensive then it might encourage sellers to reduce prices. Sellers will tell FTBs to pay the price or bog off, but I think they will take BTL investors more seriously, particularly if the house is failing to sell.

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That's a 5.6% return for the first rent. Is this really sufficient return to make the property a good investment without capital appreciation? Over on Singing Pig I was advised that after considering agent fees, maintenance, and voids, that 7.5% to 8% should be the target yield.

Agree. In todays stagnant market with little hope of capital appreciation and a big risk of depreciation anything less than 10% gross just ain't worth the bovver.

By the time you take management, maintenance, voids, inventory fees, stamp duty, risk, hassle factor and lack of liquidity into account anything less than this is barely worth while.

Trouble is you'd be hard pressed to find a 10% yielding deal out there.

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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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