Rental yield?

[MGYoung]

Ok, numpty question I know but how exactly do you calculate rental yield on a BTL?

[Dick Dastardly]

Monthly rent x 12 = Yearly Rent

Yearly Rent / Purchase price x 100 = Yield as a percentage

[Timmy33]

Dick Dastardly said:

Monthly rent x 12 = Yearly Rent

Yearly Rent / Purchase price x 100 = Yield as a percentage

And can I just add.

1) don't forget to factor in void periods, so a sensible assumption might be 11mths rent - expenses & tax due / purchase price.

2) don't forget to factor in an allowance for repairs, your tenants will do things like call a plumber because some girl has blocked the sink with her hair, and you'll have to pay for it.

3) you can offset mortgage interest against the rent, but for gods sake do factor in that you will be due to pay income tax on on the remainder. They are cracking down on those who "forget" to.

HTH.

[MGYoung]

Thanks all.

Yield currently at 10.2% so looking OK.

All the best.

[emicen]

Timmy33 said:

Dick Dastardly said:

Monthly rent x 12 = Yearly Rent

Yearly Rent / Purchase price x 100 = Yield as a percentage

And can I just add.

1) don't forget to factor in void periods, so a sensible assumption might be 11mths rent - expenses & tax due / purchase price.

2) don't forget to factor in an allowance for repairs, your tenants will do things like call a plumber because some girl has blocked the sink with her hair, and you'll have to pay for it.

3) you can offset mortgage interest against the rent, but for gods sake do factor in that you will be due to pay income tax on on the remainder. They are cracking down on those who "forget" to.

HTH.

I think 11 months is rather optimistic, I'd use 9.

[superlightr]

dont forget the capital growth as well.

[FUBAR]

MGYoung said:

Thanks all.

Yield currently at 10.2% so looking OK.

All the best.

OK? Sounds like heaven in the current market

Edited by FUBAR on Friday 5th October 10:09

[emicen]

superlightr said:

dont forget the capital growth as well.

That not a touch Mystic Meg in the current market?

I'd look at if the rental numbers only just now.

[MGYoung]

I bought the flat is 1999 so have enjoyed a fair bit of capital growth. I lived in the property until last year when I bought another house to live in. I've been very lucky!

The rental income covers the monthly mortgage payments (repayment mortgage) and leaves enough left over to pay the income tax from the rental income (minus the interest payments on the mortgage). Just sent all my accounts to the accountant for the 2006 / 2007 tax year and am awaiting the bad news!

Thanks for the info.

Martin.

[walm]

MGYoung said:

I bought the flat is 1999 so have enjoyed a fair bit of capital growth. I lived in the property until last year when I bought another house to live in. I've been very lucky!

The rental income covers the monthly mortgage payments (repayment mortgage) and leaves enough left over to pay the income tax from the rental income (minus the interest payments on the mortgage). Just sent all my accounts to the accountant for the 2006 / 2007 tax year and am awaiting the bad news!

Thanks for the info.

Martin.

Don't forget the additional tax break on furniture wear and tear if it is furnished. I am sure the accountant will point out all the loops.

Also, my definition of the rental yield is independent of the purchase price.
It is really the CURRENT price as the denominator.
Of course you can get yields >10% if you use the 1999 purchase price, some houses are up easily 2x since then.

[Timmy33]

walm said:

Also, my definition of the rental yield is independent of the purchase price.
It is really the CURRENT price as the denominator.
Of course you can get yields >10% if you use the 1999 purchase price, some houses are up easily 2x since then.

That's a fair way of looking at it really isn't it. As that is the principal upon which he is forgoing the risk free rate of return.

[AlexB]

Surely yield should be based upon:

Current income each year (capital increase + rent in excess of mortgage + capital repaymets)
divided by
Current capital tied up in propery (current value - mortgage)

The current capital is what could be invested in a bank at over 6% pre tax so the yield should be above this figure otherwise you are taking a risk that the value might go down, tennants trash the place etc for not a great dea of gain.

Alex

Edited to add - I keep looking into this and without significant capital growth I can't make the figures for around where I am stack up at current prices

Edited by AlexB on Friday 5th October 18:38

[BJWoods]

AlexB said:

Surely yield should be based upon:

Current income each year (capital increase + rent in excess of mortgage + capital repaymets)
divided by
Current capital tied up in propery (current value - mortgage)

The current capital is what could be invested in a bank at over 6% pre tax so the yield should be above this figure otherwise you are taking a risk that the value might go down, tennants trash the place etc for not a great dea of gain.

Alex

Edited to add - I keep looking into this and without significant capital growth I can't make the figures for around where I am stack up at current prices

Edited by AlexB on Friday 5th October 18:38

not quite.....
it should be based on the deposit, not the current capital for a fair comparison, ie if you put in 50k

and now due to increase in morgage your current capital is 70k. that is a 20k increase due to your property investment,

IF the same original 50k, had been put in a savings account (or wherever else) and is now worth more than 70K, then that would be better.

B

[BJWoods]

emicen said:

Timmy33 said:

Dick Dastardly said:

Monthly rent x 12 = Yearly Rent

Yearly Rent / Purchase price x 100 = Yield as a percentage

And can I just add.

1) don't forget to factor in void periods, so a sensible assumption might be 11mths rent - expenses & tax due / purchase price.

2) don't forget to factor in an allowance for repairs, your tenants will do things like call a plumber because some girl has blocked the sink with her hair, and you'll have to pay for it.

3) you can offset mortgage interest against the rent, but for gods sake do factor in that you will be due to pay income tax on on the remainder. They are cracking down on those who "forget" to.

HTH.

I think 11 months is rather optimistic, I'd use 9.

depends what you buy, where you buy and how you market it. in the last 5 years (residential) the longest void I've had is 10 days... but due to monthly rents anyway, mortgage has always been covered.

but I'm not greedy, i know what money i need to cover all costs, etc. so if i get the highest advertised rent, that is a bonus. if a tenant is available to move in within a week, say, i might knock £50 a month off, to get the tenant...of course i could hold out a month, or 2 to get he extra £50 a month.

but on a £1k aparment rent, it would then take TWENTY months to get the 2 months lost rent back.

Like any business, buy to let, benefits those , who do it best, the best location, understand the 'local' market, REAL rental rates, look after the tenants, be profesional, and keep an eye on thing, it is not a buy and forget type of investment.

B

Edited by BJWoods on Saturday 6th October 20:49

[Mudstud]

I guess any equation has to take into account a price drop, it may be zero but it should be in the equation!