UK Landlord Forum / Life

Hello fellow landlorders.

I was wondering today during a marathon Zoopla and Right move Session what yields do you target on BTL?

The reason I ask is that I was tutting away at the shocking pricing on some freehold, and the also shabby Allowance paid on housing benefit, and was upset to see the best on offer was just over 7.5%, so I searched and found this

http://www.thisismoney.co.uk/money/mortgageshome/article-1596759/Ten-tips-buy-let.html

Stating that the average in the UK is 6.2%....

My number is gross, and I can't see if there's are net, but it did make me wonder what others aspirations are, or indeed if we do all feel like getting our figurative wangers and rulers out, what our best achieved yield is??

Was on another property forum and a guy was saying how 10% gross is barely break even and wouldn't bother for less than that.  Others were quoting 20% and gave examples.  Buying 4 bed houses for 60K though mind.

My gross on my massive portfolio (of 1) is 7.57% which I'm happy with.  I prefer to look at the return V's what I put into the property financially, i.e the deposit, to see what MY money is earning.  So the gross return (i.e monthly profit before costs) is 18%.  Not sure it's the right way of doing it but 18% makes me happier than 7.5%

Interesting, I hadn't thought of it like that.

Although I do try and "lock" 5% away as that to me is my house being paid for over 20 years.

What are these greedy forum haunts you allude too?

The forum is here

http://www.landlordzone.co.uk/forums/

I base all my calculations on the purchase price plus legals and stamp duty (plus any major renovation)
and an occupancy rate of 11 months.

That seemed deeply pessimistic, but works out closer to what I actually get.

A change of tenant means a variable amount of cleaning / tidying up ("new" white goods etc).
Agents fees and credit / deposit costs.
So even if there's no significant vacant period, there's a chunk of cost (that needs to be in the yield calculation).

Even if the tenants are long term, the odd boiler costs a couple of months rent and so on.

Nothing like homes under the hammer yields...

It's not pessimistic is realistic, a much better stance than a boastful person down the pub telling you how they are getting a 12% return based on no costs and void periods.

7.5% sounds good to me. I had a big Right Move / Zoopla session recently and couldn't find anything above 6% round my way. I don't fancy looking further afield yet, maybe in the future if I expand on my portfolio of 1!

Those national averages must be gross (too difficult to get the data to calculate net). I'm wary of gross figures myself, much prefer to look at net. When I was buying someone was advertising their place (for sale) as 8% for BTL investors, but had overestimated rent by 15% and maintenance charges were an extortionate 2 months rent, in other words yield would be closer to 5%...

I also assume yields are quoted based on current property prices and rents? Obviously 10-20 years down the line your yield should have doubled or whatever...

Fair play if people can get 10%, but I imagine you've got to be buying so cheap that it's going to be higher risk DSS tenants you're taking on.

That is true.

HMO, Student lets, Rooms etc etc are all massive yields gross, but are allot of work.

I agree also that the rate must be gross.

Time is the great factor as well.

Most people base their yields on current rent and original purchase price.
So over time, they look amazing.
People like to boast about their percentages for some reason.

Right now property prices are going up (at least here in the midlands) and rents are lagging behind (about 6-12 months, which is hardly surprising given the average AST length).
Based on my 11 month calculation I'm doing well to get 4% return - but rents will catch up over time and that will fix that.

Most of this depends on how long you plan to operate and when you measure.
Over twenty years, house prices broadly double, so multiple properties are a good investment.
Over a decade, they can double, but can also fluctuate a lot - if you bought before 2008, right now you're probably seeing close to zero growth over your decade.
If you bought in 2011, things are probably starting to look up.

Yeah, I've noticed some people need to brag about their double digit percentages. Maybe just covering up personal inadequacies...

I'm hoping for 4.5% net this year (my first!), but am only one boiler breakdown or long void away from 4%! And thats with not using a LA and managing it all myself.  And of course purchase costs aren't factored in.

As you say, it's all about time. I'll be happy just to get by in the early years, with minimal stress, and then maybe retire a few years earlier than I might otherwise...

I've just invested in my first couple of flats which have an 8.3% gross yield and about 5.5% net yield, so I think I'm going to target myself to match that on future investments. It seems unlikely I could get much more on the type of properties I'm looking for (city centre one bed flats for young professionals), in fact I'm really struggling to match that again when browsing through Rightmove at the moment.

But as Riptide mentioned above I think Return On Investment is a more important measure, if you can leverage a high LTV and only use a small deposit, then the return you get on the small amount of your own cash you put into the investment can easily be in double digits. That's why I'm excited to be getting involved in property

Apart from the obvious leverage of doing it up, what other things can you do to improve the LTV?

Get someone to buy next door for waaaaay more than it's worth.   

I had my house valued by three agents last week, a local rural firm, a local regional firm, and a national.

They all came up with the same valuation.

The one of Zoopla!

Zoopla doesn't know about the new windows, extension and major internal renovations, but apparently it didn't need to because it "KNOWS!"

The formula is easy apparently, what did it last sell for? On average how much have prices changed in that area since then? Times first answer by second answer and charge £10,000 commission.....

Quote from: boboff on March 17, 2014, 07:13:30 PM
I had my house valued by three agents

Therin lies the problem.  None of them actually valued it, they gave a price they thought someone would pay for it on the market at the moment.

Would love to see a proper house valuations - Cost of Land & Cost of Building comparable house on the land would equal about 1/2 or 2/3rds of what the property could be sold for I'd wager.

Boboff, when I was remortgaging recently I noticed that Zoopla was valuing my house as one of the lowest in the street. That might have been true 10 years ago when we bought it, but it's been renovated and extended since. I added some of the improvement details to the property on Zoopla and, hey presto, it's value increased and is now one of the highest in the street.  Sure enough, the mortgage valuer agreed with mine and Zoopla's new valuation (about 30k more than it had been a week before)!

If you've had an improvements done it might be a way to get your LTV ratio up a bit...

Just spotted a mistake in my last post, increased property value will of course bring your (existing) LTV ratio "down", not "up"...

Good plan!

Thanks Simon

Article that may interest you Boboff:

http://www.thisismoney.co.uk/money/mortgageshome/article-2579900/Buy-let-landlords-static-yields-second-half-2013.html

Interesting, thanks ryans, and I fixed Zoopla now, wish I'd thought of that earlier!