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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.
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.
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.
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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