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  • Property Yields

    Is yield worth considering?

    I've been doing this 20 years and never done a yield calculation yet.

    ROI and a positive cash flow is what matters.  In the long term inflation will take care of any high gearing in the majority of cases.

    Assuming you have a long term outlook,  sensible equity release will provide more deposits. But that's a lot harder now than it was a few years ago.


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    But you would of done your roi calculations at the time when interest rates were higher than they are now so it wouldnt have mattered so much because if it was a bad deal your roi woul be too low.

    The problem now is low yields can be ignored because of the low rates with roi calculations and then what happens when they return to 4-5% ? Even if its in ten years?

    5% yield after maintenance etc is more like 4%  

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    I re-mortgaged three properties up to 85% LTV  in the eye of the financial storm, around ten years ago.  I had to do this to buy out my ex girlfriend.

    There were very few mortgages around at the time.  I had to pay £3500 per property in fees. The three year fixed rate from memory was 4.9%. despite a Bank of England base rate of 0.5%.

    The monthly mortgages were around £495 each.  The rent was about £525 at best.   I spent three years making no money.

    At the end of three years the mortgages dropped to SVR which at that time was 2.25% They have remained at less than £200 per month each for the last seven years..  Rental income is now £1650 per month.  I have enjoyed that income for the past seven years = £88000.

    Meanwhile the three houses have bounced back in price and now have equity in them of around £180k.  A capital gain since I remortgaged of around £100k.  That's a gearing of 60%.  Overall my "income" amounts to £188k in seven years.

    Anyone working on just the yield or the ROI figures would have panicked and sold up and got rid of the dear lady that way.

    In this business, you need to see the bigger picture and think about where you want to be in ten years.

    PS  I did offer to keep the lady in the deal and told her I would make her a millionaire in ten years.  She declined the offer and instead spent her pay off money on a brand new Mini.  Very nice in bright yellow.  Probably worth about £1200 now.  Classic Rich Dad Poor Dad,  she invested in a depreciating asset.

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    Thanks for your relpy,

    I completely agree long term big picture thinking is always best in property.

    In the long run property will do well.

    The only point im Making is for new entrants working purely on roi and then settling for low yields they may not make the long run if they get wiped out with rates returning to 4-5% or extra tax etc.

    If i was advising anyone starting i would say 7% yield minimum if you want some cashflow and a robust model, then when you work out roi it will be very pleasing.

    I use roi calcs when buying but i use 5% interest rates and see five year deal rates as a bonus whilst it lasts.

    Andrew
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    use a minimum of 12% ROI and you'll generally be OK.


    You can pick any arbitrary figure you like and make an argument about it.    

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    Hi Binman,

    This is a great question and there have been some really insightful answers in the comments. I would say that it is down to personal preference as some people feel more comfortable using Yield or ROI and vice versa.

    Everybody has their own way of comparing things and calculating whether a property is a good deal. As Andrew the landlord said he uses it to stress test and I think a fair few people do that, while others have their own methods.

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