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ToilAndTrouble

Yields In The North West

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There's been some debate recently on rental yields in parts of London/S.E. and how they can support current house prices - especially given the lack of first time buyers and need for investors to keep the market afloat.

Are there any bulls willing to lend support to the same argument in the North West?

  • 3 bed semi just round the corner from us is up for sale. The tenants have been booted out. They were paying £9k/annum rent. House is on for £276,000. That's a yield of 3.26%. Will an investor buy it?
  • Two bed terraces near here, prime investor fodder, are asking £180,000 on the back of £7200/annum. That's 4%.
  • Two bed apartments asking £218,000. Rent of £9k/annum. Yield of 4.1%.
  • 5 bed house, valued at £350k. Rented at £12k/annum. Yield of 3.43%.

All through this boom there's barely been any pressure on rents in the North West. Hardly an investor's paradise. So how will investors support current valuations?

T&T

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Smith & Nephew - Price £4.54 - dividend 5.6p - yield 1.24% - Why, based on your criteria, would any investor want to buy this (or almost any other share)?

Or don't the same criteria apply and if not, why not?

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Smith & Nephew - Price £4.54 - dividend 5.6p - yield 1.24% - Why, based on your criteria, would any investor want to buy this (or almost any other share)?

Or don't the same criteria apply and if not, why not?

Focus not on the dividend yield but on the price earnings ratio. Currently this is 17.8x earnings, which equates to a yield of 5.6%; not the 1.24% you suggest.

Also bear in mind there are takeover/merger rumours affecting the price up as well.

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Smith & Nephew - Price £4.54 - dividend 5.6p - yield 1.24% - Why, based on your criteria, would any investor want to buy this (or almost any other share)?

Or don't the same criteria apply and if not, why not?

It's really about barriers to entry, i would rather be a PLC company that issues share for investors to buy, rather than the investor who buys shares. Not everyone can do this so they can only invest in the areas they can access, shares just happens to be one of those easy to do invesments.

shares aren't great but they tend to perform better than bank interest

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Smith & Nephew - Price £4.54 - dividend 5.6p - yield 1.24% - Why, based on your criteria, would any investor want to buy this (or almost any other share)?

Or don't the same criteria apply and if not, why not?

I assume the projected yields on that stock are well in excess of the current yield? Are you suggesting that in the current economic climate rents will rise explosively, given that they've not managed to for the past 6 years, or do you think there's a good chance of finding oil in the garden?

There are plenty of shares in mature companies that give both current yields and projected yield in excess of BTL. Barclays shares for example yield 8%.

T&T

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I assume the projected yields on that stock are well in excess of the current yield? Are you suggesting that in the current economic climate rents will rise explosively, given that they've not managed to for the past 6 years, or do you think there's a good chance of finding oil in the garden?

There are plenty of shares in mature companies that give both current yields and projected yield in excess of BTL. Barclays shares for example yield 8%.

T&T

Where about in the NW mate?

TB

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Guest Winners and Losers

There's been some debate recently on rental yields in parts of London/S.E. and how they can support current house prices - especially given the lack of first time buyers and need for investors to keep the market afloat.

Are there any bulls willing to lend support to the same argument in the North West?

  • 3 bed semi just round the corner from us is up for sale. The tenants have been booted out. They were paying £9k/annum rent. House is on for £276,000. That's a yield of 3.26%. Will an investor buy it?

  • Two bed terraces near here, prime investor fodder, are asking £180,000 on the back of £7200/annum. That's 4%.

  • Two bed apartments asking £218,000. Rent of £9k/annum. Yield of 4.1%.

  • 5 bed house, valued at £350k. Rented at £12k/annum. Yield of 3.43%.

All through this boom there's barely been any pressure on rents in the North West. Hardly an investor's paradise. So how will investors support current valuations?

T&T

What's this!!?? Outrage! No 6% or 7% yields in the North West! It can't be so? This is the UK? Someone please call Dr TTRTR to fix it all for me. :rolleyes:

TTRTR - are you sure you are using the above method to calculate yield? That's how you do it, just in case you werent sure. ;)

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Where about in the NW mate?

TB

Stockport.

I guess yields may be better in Gorton, Longsight or Edgeley, but here they're ridiculously low. That said, I'm seeing a lot of landlords getting out, and many are being sensible enough to price at the market rather than be too aspirational. That, in combination with their ex-tenants looking to buy, is causing a blip in sales volumes.

Whether that leads to increased prices or not remains to be seen.

T&T

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this point on yields has been a mystery to me for some time.

it is not worth baying anything in this country, even less so in the south, and expect any sort of yield from tennents. unless the purchase is cash, which lets be honest is not the case in 99.999 pct of the time.

the only reason for a btl is the capital gain.

but after taking into account mr browns tax, the agents selling fees, the servicing of the mortgage , the service charges on the property, the vat on the selling fees, the solicitors fees for buying and selling, and the subsidising of the rents, to meet the mortgage payuments, boy oh boy does there have to be some capital gain, or else. oh then the 40 pct tax on that gain.

the above is one of the reasons that there aRE SO FEW PROPERTIES FOR SALE IN LONDON. ALL THE BTLERS OF THE LAST FOUR YEARS ARE sitting on a paper loss.

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Guest Guy_Montag

Smith & Nephew - Price £4.54 - dividend 5.6p - yield 1.24% - Why, based on your criteria, would any investor want to buy this (or almost any other share)?

Or don't the same criteria apply and if not, why not?

Well I wouldn't get 180k in debt buying S&N or any other shares.

I can invest a few £100 here & there as I see fit. I don't have to take on a large amount of debt to do so.

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I assume the projected yields on that stock are well in excess of the current yield? Are you suggesting that in the current economic climate rents will rise explosively, given that they've not managed to for the past 6 years, or do you think there's a good chance of finding oil in the garden?

There are plenty of shares in mature companies that give both current yields and projected yield in excess of BTL. Barclays shares for example yield 8%.

T&T

Barclays shares at the moment are £6.80 and paid a dividend in the last financial year of 26p which, by my reckoning is less than 4% !

Projected capital appreciation of BTL property is between 3 and 6% with rental yields increasing by 3% p.a. (Financial Times) probably quite similar to many mature companies.

For someone with £150,000 to invest there may not be a great deal to choose between the two and BTL is certainly no more a poor investment than any other asset class at this moment. And given the substantial forecast rise in population over the next few years it may well do much better.

Edited by ILBB

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Barclays shares at the moment are £6.80 and paid a dividend in the last financial year of 26p which, by my reckoning is less than 4% !

Projected capital appreciation of BTL property is between 3 and 6% with rental yields increasing by 3% p.a. (Financial Times) probably quite similar to many mature companies.

For someone with £150,000 to invest there may not be a great deal to choose between the two and BTL is certainly no more a poor investment than any other asset class at this moment. And given the substantial forecast rise in population over the next few years it may well do much better.

As has been pointed out, earnings per share are more useful for calculating yield. That's where the 8% comes from.

You're figures imply that rents will rise by between 6-9% annually? Or is the 3% p.a. growth in rental payments, rather than yields. If that's the case then with 3-6% capital growth yields will actually fall further! If that were to occur how could investor purchases continue to sustain the market?

T&T

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There's been some debate recently on rental yields in parts of London/S.E. and how they can support current house prices - especially given the lack of first time buyers and need for investors to keep the market afloat.

Are there any bulls willing to lend support to the same argument in the North West?

  • 3 bed semi just round the corner from us is up for sale. The tenants have been booted out. They were paying £9k/annum rent. House is on for £276,000. That's a yield of 3.26%. Will an investor buy it?

  • Two bed terraces near here, prime investor fodder, are asking £180,000 on the back of £7200/annum. That's 4%.

  • Two bed apartments asking £218,000. Rent of £9k/annum. Yield of 4.1%.

  • 5 bed house, valued at £350k. Rented at £12k/annum. Yield of 3.43%.

All through this boom there's barely been any pressure on rents in the North West. Hardly an investor's paradise. So how will investors support current valuations?

T&T

Unless those rents aren't truely representative of the area, it looks like you're overdue a property crash in your area. Lucky you! I hope your job is safe.

:D

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Guest Winners and Losers

Unless those rents aren't truely representative of the area, it looks like you're overdue a property crash in your area. Lucky you! I hope your job is safe.

:D

That's right, because property crashes only ever happen in certain 'areas', one of which is never London. :rolleyes:

Did you choke on the words 'property crash'? ;)

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Hey, ttrtr , aren't you getting about £1750 a month on properties worth about £450k (yield 4.7%)?

however small your mortgages are the yield should be based on the current market value...

as you have to allow for the ''opportunity cost'' of lost interest on the equity you have tied up in the property.

it's true that yields vary a lot depending on the type of property and location......eg Away from main population centres yields on 4 bed detached houses are about 3%....student accomm in places like hull have yields nearly triple this.........

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As has been pointed out, earnings per share are more useful for calculating yield. That's where the 8% comes from.

You're figures imply that rents will rise by between 6-9% annually? Or is the 3% p.a. growth in rental payments, rather than yields. If that's the case then with 3-6% capital growth yields will actually fall further! If that were to occur how could investor purchases continue to sustain the market?

T&T

OK, though I feel companies are often wasteful with earnings not directly returned to shareholders, if we do apply that to S&N, who's eps for 2005 (according to ADVFN) is 19.8p, we see a yield of around 4%. Similar, in fact, to the quoted rental yields.

As for the 50% difference in capital growth to rental income? This is the practical aspect of the changing reward ratio for capital as against labour. Those using their capital (property owners) expect to be rewarded wiith a 6% annual increase (their capital available for investment increases by 6%) whilst labour (renters) will only be rewarded for their labour with 3% annual increases. I'm afraid that's the way of the world at the moment !

Edit. I wouldn't invest in either the properties quoted or S&N (who have warned yet again) but it's just to point out that BTL is not, compared to other asset classes, that bad an investment.

Edited by ILBB

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Guest Winners and Losers

Hey, ttrtr , aren't you getting about £1750 a month on properties worth about £450k (yield 4.7%)?

however small your mortgages are the yield should be based on the current market value...

as you have to allow for the ''opportunity cost'' of lost interest on the equity you have tied up in the property.

it's true that yields vary a lot depending on the type of property and location......eg Away from main population centres yields on 4 bed detached houses are about 3%....student accomm in places like hull have yields nearly triple this.........

Maybe he would be better off selling up to release that equity, and invest it in something that is giving better returns? Like Hull? :rolleyes:

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OK, though I feel companies are often wasteful with earnings not directly returned to shareholders, if we do apply that to S&N, who's eps is 20p, we see a yield of around 4%. Similar, in fact, to the quoted rental yields.

As for the 50% difference in capital growth to rental income? This is the practical aspect of the changing reward ratio for capital as against labour. Those using their capital (property owners) expect to be rewarded wiith a 6% annual increase whilst labour (renters) will only be rewarded for their labour with 3% annual increases. I'm afraid that's the way of the world at the moment !

So your 3% yield increase each year is actually rental income growth? Yields will continue to fall? How low do yields need to go before you sell? Who will you sell to?

As an owner of capital, what proportion of the yield is your reward for the risk to that capital? What proportion of your reward for the risk of interest rate fluctations affecting your debt servicing and lost opportunity costs? Don't forget the yield figures I gave exclude voids, maintenance, entry and exit costs.

Anyway, TTRTR thinks the yields indicate overvaluation. He's a canny Aussie, and that's enough for me!

T&T

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He's a canny Aussie, and that's enough for me!

T&T

You obviously havent spent much time in Australia. ;) I didnt know such a thing existed? :unsure:

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You obviously havent spent much time in Australia. ;) I didnt know such a thing existed? :unsure:

LOL, only most of my life. Reading the Australian news blog discussion of the interest rate rise earlier was definitely a reminder of attitudes back home. How embaressment! :blink:

T&T

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LOL, only most of my life. Reading the Australian news blog discussion of the interest rate rise earlier was definitely a reminder of attitudes back home. How embaressment! :blink:

T&T

Where you from? I'm from Sydney.

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So your 3% yield increase each year is actually rental income growth? Yields will continue to fall? How low do yields need to go before you sell? Who will you sell to?

T&T

Every investor will have their own criteria!

The world is awash with money (which is flowing disproportionately to capital rather than labour). However, at the same time there's a limited supply of property but with an increasing demand both from tenants, as their numbers increase, and from investors, as their pool of capital increases.

Increases in decent BTL property prices would, over the long term, seem a one way bet!

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Guest Winners and Losers

Brisbane. Don't get back there though, and have no plans to.

T&T

Parochial, eh?

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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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