X

Sign Up

or

By signing up I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Sign Up

Sign Up With Facebook, Twitter, or Google

or


By signing up, I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Log In

or


Don't have an account? Sign Up

Forgot Password

To reset your password just enter the email address you registered with and we'll send you a link to access a new password.


Already a PT member? Log In

Don't have an account? Sign Up

  • Buy-to-Let

    How to stress test a portfolio?

    Hi all

    I would like advice on how to stress test your portfolio. I have recently agreed 3 new BTL each roughly 100k.

    100k, 75%LTV, int only 5 year fixed 2.6%, 150ish per month leaving me with a positive £300-400 cash flow per month per property

    However, if after the 5 years interest rates have gone up and the next product I get is 6 or 7% does this totally obliterate my cash flow? In other words any interest rate increase of note will make any BTL income extremely difficult if you are highly geared.

    Perhaps I am missing something obvious or am I right?

    Thanks

    2
    0
    If you want a high gearing to reduce the risk you need high yields so if rates are 7% you still make a profit.

    8% gross yields is my benchmark

    Andrew
    0
    0
    If you cant achieve a high yield you need to reduce your ltv until you reach a stress test your comfortable with. 


    0
    0
    Yes you are 100% right 

    A lot of property groups, gurus, mentors, etc bang on about gearing but it can leave you really exposed. It’s just something for them to seem knowledgeable. 

    You will likely be able to remortgage at the end of your term for better than 6/7%, but changes to the Bank of England base rate could change. 

    I love that you are stress testing and getting the full picture. Very wise with any investment.
    0
    0

    ``A lot of property groups, gurus, mentors, etc bang on about gearing but it can leave you really exposed. It’s just something for them to seem knowledgeable.``

    What happens though if you actually are knowledgeable

    Gearing is a valid strategy and yes you can leave yourself exposed if you do it wrong

    Do it right though and its makes you wealthier quicker

    In the past I geared @ 85% when my mortgage rates were 7% and that was fine

    Because  i was making 20- 40% on each £1 I borrowed , I banged on about gearing to people

    Some people listen and take action , some say thanks but no thanks . Fair enough

    2% rates are  better of course but 7% is not a show stopper.

    The figures shouldn`t  hold people back .

     Its the fear of those figures though that can sap the spirit in some

    1
    0

    Jonathan Clarke. http://www.buytoletmk.com


    I agree but you must have had very healthy yields to make 20-40% roi with 7% rates. 

    I think leverage is the quickest root to wealth if structured correctly.

    I look at each unit individualy and dont want another unit bailing out a poorly performing unit.

    Out of interest if you was starting now what yield would you look for for A.75% ltv B.60% ltv?

    Mine would be:
    75% ltv = 8% gross yield
    60% ltv = 6% gross yield

    Obviously i would prefer 75% ltv but if im only able to get 6% yields in my target area then i have to lower my loan to value To make it more of an investment rather than gambling on interest rates being low

    Andrew
    0
    0

    ``I agree but you must have had very healthy yields to make 20-40% roi with 7% rates. ``

    Yes about 10% . Max was 15% But the ROI is not determined on yield alone of course

    Some i would  have and did do on  5% yield if the buying price was right

    ``Out of interest if you was starting now what yield would you look for for A.75% ltv B.60% ltv?``

    Yield I look for will  maybe be between 6% - 8%

    The LTV is not really a factor in determining that  percentage

    Its more a question of

    Can I add value

    Can I buy at a good price

    Yield on debt is more important  to me than yield on purchase price


    0
    0

    Jonathan Clarke. http://www.buytoletmk.com

    Thanks for your reply,

    What i meant was if you could only achieve 6%  yields and that meant breaking even after maintenance etc at say 5% Interest rates would you lower your loan to value to achieve a higher break even figure? 

    How do you define yield on debt? 

    Thanks 

    Andrew
    0
    0

    Possibly yes if the attraction of the deal was significant and i had to lower the LTV to get the multipliers for the loan criteria to work

    Yield on debt is explained here

    https://propertymetrics.com/blog/how-to-...eld-ratio/

    My favourite calculation though is ROCE = Return on cash employed 

    https://propertymetrics.com/blog/how-to-...eld-ratio/

    With leveraging and equity release its fairly easy over time to reach infinity yield on a new purchase

    Infinity yield is the mouth watering statistic i like to acheive

    This makes property beat all other asset classes by a country mile  in my view



    0
    0

    Jonathan Clarke. http://www.buytoletmk.com


    Thanks, I’ve read through yield on debt and it’s basically what I was saying about a break even figure.

    £110000  property @75% ltv  =£6600 rent £5610 net rent, break even figure (yield on debt)  6.8%

    Would you Be happy with that yield on debt? Or maybe change it to 60% ltv and make the yield on debt 8.5%?

    Andrew
    0
    0