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  • Property Yields

    Single Let, Low Yield? - Help

    Hi all,

    I'm currently creating some financial models to calculate cashflow, yields, ROI etc on a single let. However, many of the potential properties I am running through my model do not appear to be generating anywhere near the amount of cash flow or yield, I was expected.

    (Below based on a 2 bed house within local area, 140k purchase price, rental income 750 pcm)

    • 75% LTV Interest Only Mortgage 105k @ 5% = £438 / month
    • Insurance = £50 / month
    • Letting Fees 12% + VAT = £108 / month
    • Maintenance/Repairs (1k/year) = £85 / month
    • Void Period (8% / 1m per year) = £60 / month

    Total Rent £750 - Total Costs £741 = £9 Profit

    Gross Yield = 6.4%   Net Yield = 0.1%   ROI = 0.3%

    Experienced landlords - Would you expect higher rental on 140k property? Am I being too conservative with my costs? Is 5% mortgage interest too much to forecast, what rates have you paid on average over your time in property?

    Thanks in advance!

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    Hi Dan,

     I’m not sure which part of the country you are in, but your fingers look a little disappointing compared to my part of the world. As a quick example I’ve just bought a Leeds city centre flat, rent £750, management 7% plus VAT, service and ground rent £100, maintenance about £50/month. There is a dearth of apartments in Leeds, so voids are unlikely at the moment. This particular unit went to first viewer, 2days after marketing. Mortgage is 2.24% (personal) and cost £110k. Leaves 350/month profit and will extract £20k back out in 2 years time, upon remortgage. Leaves about £10k in the deal.

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    Ps. No insurance, as it’s covered by service charges. However, on my houses, I’m paying £18 a month for property worth £220k. No rent guarantees included.

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    Hi Dan,

    I would relish a BTL with a yield of 6.4%.

    The last few mortgages I have achieved have been sub 3% for a five-year fix which would make a considerable difference your net yield.

    There are many letting agents charging less than 12% plus VAT.

    In Bournemouth, my void periods are practically non-existent as tenants seem to stay forever and when they do leave there is always a clamour of eager new tenants for the property.

    In previous years of being a landlord, I was content to just achieve a capital growth of around 5% per year without making any cash flow profit whatsoever.

    In addition to this, my 75% mortgage was being usefully eroded by the effect of 2.8% inflation each year which is a bonus which not everyone appreciates.

    Even if you have a break-even situation in the first few years, rents will go up and then bring you into profit.

    Property gives everyone the opportunity to experience life-changing gains. It is just a function of time to take advantage of the benefits in order to accumulate wealth.

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    We just got 2.69% 5 year fixed which would save you £200pm. I would try to negotiate 8% plus vat letting fees (or maybe less depending on your area ) but ring around to find out what the norm is, find out who has a good reputation and approach them with your proposed fees. Worse case scenario they say "no" but agents are being squeezed so I would expect them to be flexible.

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    Thanks all for your comments - I've decided to add in "best" and "worst" case scenarios to the model. Best case, tightening up the running costs and securing a better rate on the mortgage is showing a healthier positive cashflow

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    Dan, you need to find the ‘sweet spot’, where the property value is relatively low and the achievable rent is relatively high.

    I don’t think interest rates are going to go up anytime soon , that would be a political decision that nobody in government is going to make in the midst of the Brexit shambles, so you are safe with 2.5% interest.

    Also, if you are busy maybe use an agent to find you a good tenant but manage it yourself? There really is nothing to it, the tenant texts you if something is wrong and you can find a builder on my builder.com. I also let my properties on Openrent for £49.

    Its nerveracking the first time, particularly if you don’t have a reserve to fall back on, but it’s worth it on the long run.


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