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  • Property Yields

    Is yield worth considering?

    Why do we use the yield calculation based on purchase price when we only invest deposits?
    For example...
    £100k house - £25k deposit.
    £450per month rent.
    £130pm mortgage.
    So that yield would be 5.4%
    But...
    In reality - my £25k is bringing me in £320per month. Which is £3840 per year. Or a return of 15% a year on my actual £25k
    So why consider the actual value of the property - when all what really matters is the money you put in?

    Thanks!
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    turnover is vanity, profit is sanity, but cash is king

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    I use it to quickly see if it passes my stress tests for my own risk profile.

    If i was achieving 5% yield I may want To have 50% Loan to value but if I was achieving 8% I would be happy to sit at 75% loan to value.

    The higher the yield the higher your stress test will be (comparing the same value property’s in different areas,so as to ignore different maintenance % running costs), i would rather break even at 10% rates rather then 6%.

    This allowes me to borrow more but feel the same amount of risk!


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    Thanks for the reply!

    Maybe this is what I don’t understand then... as yield is based on property value, even if you up the deposit to 50% — the yield still just stays at 5% is that correct?

    So putting more in - doesn’t make your yield go up - but it will make your return on the actual deposit go down?
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    Hi Binman,

    Yes you’re correct gross yield stay safe the same regardless of your deposit but the more money you put in the lower you’re return on investment.

    So you want to borrow as much as you SAFELY can.

    This is the ONLY time gross yield is important to me as I know with a higher gross yield my break even figure will be higher in turbulent times.

    8% yield Is my goal but I will accept 7% then I’m happy at 75% ltv as I know I can take a few hits and survive. (Ignoring tax issues etc as it’s a different conversation)

    I believe yields of 4 or 5% if geared at 75% plus leaves you far to exposed to market conditions, i would love to Be proved wrong but everytime someone says otherwise they always factor in current low interest rates and capital growth which is speculation.

    I would love for anyone who has built a large portfolio on sub 7% yields using high leverage to say how it’s done.

    But everyone on here who has done that was achieving 8% plus yields and yes rates where higher but I would feel more comfortable with risking gearing with 10% yields if the rates where 5-6%.


    Andrew




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    I work the very same strategy as yourself - it builds strength into a business

    8% yield with 25% deposit = a good cashflow

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Personally I have never looked at yield, I look at ROI and monthly cashflow.

    It's just as quick to work out and for me gives a more accurate comparison to other investments you could make with the same cash
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    Slowly working towards financial freedom

    I use 2x types of yield calculations:

    1. When I'm buying - the purchase price and current rent or first achieved rent.

    2. At X points from there-on (eg. annually) - the current House Price Index from the lender and the current achieved rent.

    Hopefully there should be a change of figures for the better!

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    There was a brilliant thread on here once which explained all the different type of yields

    Its a term bandied about a lot but has multiple meanings so often confuses

    yield on PP, yield on debt, yield on investment, yield before tax , yield after tax  etc

    Yield should be considered yes but it should really to be put in context each time so not to mislead

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


    This may sound a little silly

    but I look a yeild in two ways

    1 short term yield ie the yield i have on my deposit ie you put in 23k and you make positive cash flow of £300 a month just over 15%

    Once I have returned my deposit back to the company

    2 I then just look at the yield on the property ie purchase price 100k rent 8k per year 8% yeld

    I run what i call a deposit snow ball as the business grows my cash flow grows and I reinvest the cash flow back into Deposits

    It can take a bit of time to get it started but as the Deposit snowball grows its powerful way to build a BTL Business



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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.