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  • Property Yields

    Landlords "lucky to get 2.5% yields" ...



    A new analysis of the private rental sector suggests the typical buy to let investor will be lucky to generate annual returns above 2.5 per cent before 2021.

    The latest BondMason index says the issue is down to the familiar cocktail of higher costs and restricted fiscal benefits.

    BondMason says the effective tax rate facing landlords has ratcheted up from eight per cent of their rental income at the start of 2015 to 47 per cent today.

    It will go up further to an effective rate as high as 56 per cent next year, when counting the non-deductibility of mortgage interest. 

    Full/source article

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    I think this is spot on

    This is why I set my min yield of 8%

    others will say it can be done for less I think when you take every thing into consideration 8% is worth doing any thing less is not

    Others will say yes but you have to factor in capital growth ?? but you have to keep the investment going 365days of the year to get the capital growth.

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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.


    "Others will say yes but you have to factor in capital growth ?? but you have to keep the investment going 365days of the year to get the capital growth."

    Agree with this approach.

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    His dyslexic Landlord,

    Which yield calculation do you use for your 8% criteria please.

    Many thanks

    Julie
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    I use a simple calculation

    of purchase price and the yield

    ie 100k value and 8% Yield £8000 a year rent

    I know others use other methods but i keep it simple

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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.

    Works for a vanilla model. But if you have lots of other costs, it's not a good comparison. For instance in an HMO, you might pay for broadband, a cleaner, council tax, gas, electric, water, tv licence. On top of the mortgage and repair costs. I much prefer ROI. % profit on money invested (deposit, renovation costs & fees/taxes) created by rental income, after all running costs.

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    Do you rebase the purchase cost annually (to reflect current capital value) via a rent increase?

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    I’m sorry DL, I just don’t get that. I hear it time and time again on this board and completely disagree with it. The yield is interesting but tells you absolutely nothing about it being a viable investment. I am convinced that yield is only of use for agents - they don’t know your LTV, mortgage rates, maintenance schedule, etc. and so they use yield. Fair enough.

    But for an experienced, sensible investor, surely there is only one calculation that matters - true, all inclusive ROI. This calculation is the only one that truly allows you to determine a mongrel from a pedigree. With experience you will know what all your costs will be (within a reasonable +/-) and that will inform you whether to invest on the property or in your pension.
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    There are many ways of looking at returns, as you point out, i look at it two ways, firstly on the basis of the amount of cash i have invested , but seeing as this may have been in place for nigh on 20 years its a very flattering number, just finishing last years accounts and i’m running at close to 100% before tax. But thats hardly a true reflection of the state of things.

    The second viewpoint is what is the return on my portfolio if i sold it all and just held cash, that comes in at around 8%,  as that sort of return is not available in  the bank etc, i feel its a good return , but obviously does’nt take into account the value of my time.

    The first makes no allowance for the passing of time or capital gains, the second shows the benefit of both.

    We all have very varied business models and attitudes to debt /risk, calculating your return is a pretty personal thing and can give very varied answers.
    If i were buying , i’d be looking along the lines of DL’ s view with my capital cost be everything until the first tenancy starts in a new purchase. On a cash purchase i’d want 8% , some think this is greedy but i want to cover the costs of purchase ,which are not recoverable on eventual sale, over a reasonable period. I also work on running costs being around 20% of gross rent, so i’m down to around 6.4%, legal costs and sdlt take another chunk out of that when spread over 5 years.

    Here those returns just aren’t possible, so i’m not going to buy. Locally property was selling on “agent yields” of around 5% , but this seems to have stalled, partly i’d guess because the airbnb/holiday let market is saturated and also due to the amount of btl’s being put on the market as landlords try and cash in whilst consolidating portfolios or exiting the sector. fingers crossed opportunities will start to become available if the trend continues.
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    some think this is greedy but i want to cover the costs of purchase ,which are not recoverable on eventual sale

    Why do you think this? The simple government leaflet says you can deduct the cost of buying and selling the property from your gain and the relevant act allows you to deduct:

    the amount or value of the consideration, in money or money’s worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset, together with the incidental costs to him of the acquisition

    with the definition:

    the incidental costs to the person making the disposal of the acquisition of the asset or of its disposal shall consist of expenditure wholly and exclusively incurred by him for the purposes of the acquisition or, as the case may be, the disposal, being fees, commission or remuneration paid for the professional services of any surveyor or valuer, or auctioneer, or accountant, or agent or legal adviser and costs of transfer or conveyance (including stamp duty)

    Has this been superseded by a new act?

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    Yes you are correct, but this only recovers the 28% of the costs you would otherwise have paid capital gains on. Ie, if you’ve paid 8k in SDLT and costs, this effectively becomes part of your property purchase price in terms of your calculations for returns, however , it becomes an allowance against gains rather than your base price (if that makes sense).
    All part of the capital costs of adding to your portfolio as are refurb costs prior to the first let. 
    You are reliant on capital gains to cover the purchase and selling costs , whilst if you hold for the long term this is likely its not something I bank o and so work on recovering them in the first 5 years.  Having done so ,i see it as a notional increase in returns there after. Its these costs especially the additional sdlt that mean that flipping propertiesis becoming ever harder as the amount of value you need to add is ever increasing.
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