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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)
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!
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.
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.
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.
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.
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
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.