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Hi Kyle and welcome.The answer is ... it depends! There are many factors affecting ROI, including property type, how it is occupied, and the formula you use for the calculation etc.For single occupancy BTL, the typical ROI is 5% to 8%. For higher risk/higher reward strategies like HMOs, the ROI can be typically between 10% and 20%.On very low value properties, you could achieve an ROI up to 25%.Clearly, when it comes to being sold a property course, the course seller will want you believe that there's a pot of gold at the end of the rainbow.Reality is, of course, rather different.The good thing about numbers is that they never lie, so its very easy to calculate ROI and disprove any embellishment because of a sales agenda.Hope that helps?
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**
Yes 25% - 30% is realistic
There is no set figure as every deal is different
It depends on how you are structured as well but for a simplistic example......
100K unit 25K deposit + 5K in fees /sdlt / survey etc = 30K investment
600 rent pcm
75% LTV @ 2.5% loan rate = 156 pcm = 444 pcm cash flow x 12 = 5328 pa
3% growth pa = 3000
5328 + 3000 = 8328 return pa
8328 as a % of your 30K investment = 28% pa.
Jonathan Clarke. http://www.buytoletmk.com
Hi Jonathan, this is interesting! Although I haven't been doing it, I understand why you would add capital appreciation per annum. Even though its an average estimate, it can give you a truer understanding of your return. Can I ask though why you wouldn't deduct any costs other than mortgage? Surely the ROI would reduce significantly if you deducted agency fees, gas safety certificates, building insurance, maintenance etc? 28% sounds fantastic but I don't think thats what you actually get in your pocket after all costs? Or am I misunderstanding something here?
Thanks : )
Hi. yes you are right 28% is a gross figure so its a bit glossy
and capital growth should be included as a factor as well and just yes put an average in
this shapes your strategy going forward
only the true ROI is known when you sell so its only right to project realistic figs within that say 25 yr time frame
All other costs should be taken off like maintenance yes I agree
And your tax as well should be factored in
These figs vary quite a bit for each individual so i dont routinely include those
But 28% gross will still give a net figure far more than a building society 2%
And the figures get better the more you grow your portfolio
I have properties which get me 100% net return
(Its really infinity returns but its hard to get your head around that sometimes )
this is when the capital growth grows enough to take equity out for another deposit
so you have 100% lending on a new property and still make a profit so ROI is infinite !
so 28% is just the starter figure in my eyes
What you have to look at is that Yield and ROI are two very different things!
Yields are normally very average if you purchase cash (unless you are you going to remortgage at a higher value after 6 months)
Invest in the right property and you should get 15-25% ROI depending on location once work done and remortgaged - more if you get a great buy or somewhere with a bit of potential (extension/extra garage to rent separately/etc)
You wont find 20%+ properties on Right Move very often though.......
Great question keep them coming. This is what this forum is about to help and educate each other no matter how big or small the question.
I think that is most definitely a realistic figure, again it changes depending on your investment and calculate your ROI, but it is achievable.