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JonoP

Rent Vs Buying.....

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I have just signed up to rent a new house. It is a 2 bed bungalow, built in the last couple of years in the South East. It is all very nice - good size rooms and bedrooms, a great kitchen, nice garden etc.

The agent had it on for £1000PCM. I have negotiated a price of £950PCM on the basis I will sign for 12 months (which protects me from having to move as much as it protects the landlady). I have also secured concessions around being able to have a pet, have a cat flap fitted and changing the decor a bit.

The lady who owns it is in her 80s and has to move for health reasons. She has been trying to sell it for months with no luck. When we viewed, she advised she had spent £40K on a new conservatory, which is indeed lovely.

So - I have just looked up the price she paid for it on the land registry. I was shocked to discover she paid £340K, so with the conservatory, that comes to £380K. I think she was a downsizing cash buyer.

She is renting it to us for £950PCM - a yield of 3%

On the back of a fag packet I have worked out that renting this place over the next 24 months will be £75,000 cheaper than buying on an IO mortgage if house prices decline by 15%

This, in my mind, is the reality of the rental world today. All of these people talking about 'rising rents' are smoking cr@ck. I dread to think how many other people there are out there who are renting their old houses out whilst 'waiting for the market to improve' at similar derisory yields....

I feel genuinely sorry for my landlady - she was obviously absolutely fleeced by the developers that sold her the house in the first place.

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I'm renting a house for £695, peak value was probably £300k. Similar not shifting at £250 at the moment.

I couldn't justify paying more than £150k for this house, and I think that would be overpaying. A value price would be £120k.

I'm not worried about the LL, think they bought pre-boom and probably paid sub-£100k. But the fact remains that they stand to make a huge paper loss. In fact they have probably already made it because virtually nothing is selling. Market clearing price would be anyone's guess, quite possibly £150k.

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I'm paying £1000pm to rent a house that cost my landlord £176k in 2002. So the yield there is pretty good. Every situation is different, there is no "reality of the rental world today" that you mention.

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I'm paying £1000pm to rent a house that cost my landlord £176k in 2002. So the yield there is pretty good. Every situation is different, there is no "reality of the rental world today" that you mention.

Yeah, granted, there are some people with OK yield - my current place yields 6.2% - but there are hundreds of thousands of new/inadvertant landlords out there taking a huge hit on yield. The figures for their yields do not make it in to Paragon press releases though.........

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I'm paying £1000pm to rent a house that cost my landlord £176k in 2002. So the yield there is pretty good. Every situation is different, there is no "reality of the rental world today" that you mention.

only a retarded dingbat with a large lump of donkey crap where brain tissue would be would even TRY and calculate yield based on anything but current value.

And therein lies your mistake pablo. Now you presumably know what that vague 'horsey' smell is that follows you around everywhere.

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I've a friend who recently move flat. Can't sell the old one but has been lucky enough to get a renter in. The rent doesn't cover the mortgage but it's enough to keep him happy for the moment.

I think there are more and more of 0% yield or -ve yield landlords out there by the week...............

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I've a friend who recently move flat. Can't sell the old one but has been lucky enough to get a renter in. The rent doesn't cover the mortgage but it's enough to keep him happy for the moment.

I think there are more and more of 0% yield or -ve yield landlords out there by the week...............

so now he has two mortgages, two declining capital assets and two lots of repairs risk, plus one lot of usual rental risks.

perhaps he'll be buying with some friends soon.

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I'm paying £1000pm to rent a house that cost my landlord £176k in 2002. So the yield there is pretty good. Every situation is different, there is no "reality of the rental world today" that you mention.

That's still only 6.8%

8% is often quoted as the minimum for landlords to break even

So house prices need to fall below 2002 levels

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On the back of a fag packet I have worked out that renting this place over the next 24 months will be £75,000 cheaper than buying on an IO mortgage if house prices decline by 15%

Ah so you can afford to smoke but not buy a house- this is the kind of fecklesness that is ruining the housing market

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quoted by idiots? or is there some reasoning behind this figure?

not sure about the reasoning - presumably to do with long term average interest rates, voids, repairs etc.

but this is the figure I've heard from a couple of large scale landlords who've been in the business 20+ years - they say it's the accepted minimum from people who do this seriously and long term

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not sure about the reasoning - presumably to do with long term average interest rates, voids, repairs etc.

but this is the figure I've heard from a couple of large scale landlords who've been in the business 20+ years - they say it's the accepted minimum from people who do this seriously and long term

Nah, any landlord worth his salt who has been in business for a long time will either want 10-12% yield with little to no capital appreciation or will be happy to ride a bubble wave upwards with 8% yield.

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not sure about the reasoning - presumably to do with long term average interest rates, voids, repairs etc.

but this is the figure I've heard from a couple of large scale landlords who've been in the business 20+ years - they say it's the accepted minimum from people who do this seriously and long term

Makes sense if the 8% is when you don't have to make repairs or cover voids. I thought you meant 8% profit after you paid for all that stuff, which sounded like an excellent profit. My bad.

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We rented a place last year for £500 pm. Keen in mind that it was in need of work for long term occupation. The price they seek is £400k. Several places in the vicinity which we looked at for £600-650 rent are still asking in excess of £500k.

Mind you, there are a few which looked £500 pm (rates inclused of course!!) which are now asking a sale price of nearer £200k - compared to the above that sounds fantastic, but it isnt really!

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only a retarded dingbat with a large lump of donkey crap where brain tissue would be would even TRY and calculate yield based on anything but current value.

And therein lies your mistake pablo. Now you presumably know what that vague 'horsey' smell is that follows you around everywhere.

Actually, I disagree here a little. If they are going to hold the asset for its full life (lets say 25 years) then looking at the entry IRR isn't such a bad idea. The "problem" only occurs if they try and sell it.

The issue with the market as we all know is that rents have not kept up with the rapid explosion in house prices. If you bought a good BTL in 2000 that was yielding 8% and you were planning on holding until the mortgage is paid then the fluctuation in market value is irrelevant. The main issue is that the average BTL'er probably doesn't realise that houses have a finite life and have not tried to recover the capital over the asset life. A BTL should be looked only on a cash yield basis and not a mark-market valuation. This is why people have become happy to take a rental loss in hope of capital gain.

Equally a bit of MEW isn't such a bad thing - you finance a dividend for yourself boosting your returns further and pass the risk to the bank. If I had bought a BTL for say 100k that is now “worth” 300k, I would gear it up to the hilt, pay myself out, take the profit now and hope for the best.

You may disagree, but this is exactly how things are looked at in the Private Equity Infrastructure world - I do it for a living. You look at the full life returns, then what you can get by refinancing it after a few years and then if you are lucky what you can sell it for. However you only ever do the investment decision on the entry IRR assuming that none of the other things can be done. If you are happy with that, then you are happy for the rest of the life. Sadly Joe Public don’t think like that and focused on the exit returns.

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depends alot on where you live. In my street houses sell for 230kish, renting one is 1400/month. my mate lives on the seafront, not a mile and a half away in a 2 bed flat. renting it costs 900/month, to buy would be £350k

wierd eh? (i don't know how to calculate yields, if its just the rental income vs purchase price then its 7.3% and 3% respectively)

Edited by 5lab

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  • 399 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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