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There is a massive different between gross and net yield. So, what I would like to know is what gross yield makes an investment in property worthwhile?
I understand that there maybe capital appreciation as well but with house prices where they are right now, it's hard to see much capital appreciation over the next few years.
Everything now appears to be against landlords so when you take into account expenses, tax etc what percentage return makes it all worthwhile?
I could give a simplistic answer and say for example 8% gross and 4% net
But it would be a fairly superficial response . More work needs to be done to be really helpful
One also has to define `gross` `net` `yield` and `worthwhile`
These words have different meanings to different people
Gross Yield on Debt maybe 20 -40% for me . Net yield after tax on purchase price maybe only 3%
And people think differently about what is worthwhile to them
That may depend on your individual tax position or just your view on life in general
Someone starting out may feel a low yield may be worthwhile if they have a 100K job for the next 20 years
They may be just content to wait 20 years for capital growth and settle for 5% yield
A full time professional investor may need this money for living expenses so look for a 10% yield
Lots of variance in between . A 50K job and a 7.5% yield maybe ok for some
If I buy a property for 90K which I know is really worth 100k I may settle for 5% gross yield
If I know I can add 10K of value to it by spending only 5K I may settle also for 5% gross yield
If I buy a property for 100K and its only worth 100K then I might want 10% yield to compensate
Areas of the country may give you a different answer as well
So everything has to be weighed up before the answer is given
I used to aim for 10% yield gross on purchase price. I can work this out in 10 seconds
This was just to give me a back of an envelope quick calculation tool before i viewed
If that passed the test the calculator got some further bashing as my pulse rate went up
Jonathan Clarke. http://www.buytoletmk.com
I start backwards first
I look at my costs and then look at the amount of profit I expect - at least 300pcm
Anything less and I walk away
As a rule of thumb in the NE £595 rent £300 profit over the portfolio for new purchases in my Company
If I were buying which I am not!
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.
Just adding this related thread:Spotlight on yield and cash flow - top resources to help you measure and manage!
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Firstly the overall yield is split between Rent & Capital Growth
In SE the latter predominates and vice versa in Midlands/North
Parts of central London over past 20 yrs have seen 10 fold price rises - hence a 900% Cap Gain
That property supports a gross Rental Yield of sub 3% in some cases
Conversely in really deprived locations in North the gross rent yield can be as high as 20% - but with no prospect of Cap Growth
I have to pick you up on the North Market
To say there is no capital growth is quite wrong
I could show you property I purchased I the late 80s and going forward to 2007 which has done very well
This the true figs
2 bed flat purchased in 1989 £12500
2 bed Flat value in 2007 £90000
2 Bed flat after crash in 2007 £55000
2 Bed Flat today £70000
its only the past 10 years since the crash that North property has not performed well
so to say no growth is totally wrong
I did say in really deprived locations in the North
In HORDEN SR8 a Housing Assoc last yr sold 170 empty 3 bed houses - cos nobody wants to live there - av sold price per unit was around £17k
Also the OP will be starting from today - so going forward growth may be an issue across whole of UK
As ever start / finish points determine actual growth
I honestly believe we will not see the growth in property prices that were seen in the past 30 years
every part of the UK will see a slow down
Inflation was always the Landlords friend but I believe property wont even beat inflation for years to come
Income yield is key to success today
If wages increase so will house prices. In 10 years time prices will be higher than they are right now in the south.
The BOE will raise interest rates to slow inflation down
and with BRITEX anything could happen
my own feeling is we will see little inflation in the next ten years or longer