What sort of return to look for on rental property?
Discussion
Chaps,
We own a small flat. We used to live there but have moved out, and it has been let for the last 5 years.
It has a mortgage on it, and we pay a management fee for the maintenance of communal areas, buildings insurance etc. (It is let directly, there is no estate agent.)
What sort of percentage return is 'good'? Having done some back-of-the-envelope calculations, it seems that the rent we are getting is about 5.2% of the value of the flat (per year), but if you knock off the expenses we pay (mortgage, maintenance fees etc) it comes down to 3.52%.
What's normal in the current market? FWIW, the flat is in Bow, East London.
The reason I am asking is that the tenants are going to give notice later on this summer, and I'm wondering whether to sell up or carry on letting it (and, if so, whether to put up the rent - although that question is of course answered by the market.)
Oli.
We own a small flat. We used to live there but have moved out, and it has been let for the last 5 years.
It has a mortgage on it, and we pay a management fee for the maintenance of communal areas, buildings insurance etc. (It is let directly, there is no estate agent.)
What sort of percentage return is 'good'? Having done some back-of-the-envelope calculations, it seems that the rent we are getting is about 5.2% of the value of the flat (per year), but if you knock off the expenses we pay (mortgage, maintenance fees etc) it comes down to 3.52%.
What's normal in the current market? FWIW, the flat is in Bow, East London.
The reason I am asking is that the tenants are going to give notice later on this summer, and I'm wondering whether to sell up or carry on letting it (and, if so, whether to put up the rent - although that question is of course answered by the market.)
Oli.
zcacogp said:
Chaps,
We own a small flat. We used to live there but have moved out, and it has been let for the last 5 years.
It has a mortgage on it, and we pay a management fee for the maintenance of communal areas, buildings insurance etc. (It is let directly, there is no estate agent.)
What sort of percentage return is 'good'? Having done some back-of-the-envelope calculations, it seems that the rent we are getting is about 5.2% of the value of the flat (per year), but if you knock off the expenses we pay (mortgage, maintenance fees etc) it comes down to 3.52%.
What's normal in the current market? FWIW, the flat is in Bow, East London.
The reason I am asking is that the tenants are going to give notice later on this summer, and I'm wondering whether to sell up or carry on letting it (and, if so, whether to put up the rent - although that question is of course answered by the market.)
Oli.
Its difficult to answer a question like this as everyone is in a different circumstance. I know people who barely make anything on their BTL properties due to expenses / fees / repairs / mortgage payments / service charges being almost equal to the rent.We own a small flat. We used to live there but have moved out, and it has been let for the last 5 years.
It has a mortgage on it, and we pay a management fee for the maintenance of communal areas, buildings insurance etc. (It is let directly, there is no estate agent.)
What sort of percentage return is 'good'? Having done some back-of-the-envelope calculations, it seems that the rent we are getting is about 5.2% of the value of the flat (per year), but if you knock off the expenses we pay (mortgage, maintenance fees etc) it comes down to 3.52%.
What's normal in the current market? FWIW, the flat is in Bow, East London.
The reason I am asking is that the tenants are going to give notice later on this summer, and I'm wondering whether to sell up or carry on letting it (and, if so, whether to put up the rent - although that question is of course answered by the market.)
Oli.
I also know that it is possible to have a minimal mortgage payment and be raking in the rent.
So a typical % return is difficult to calculate.
Find out the potential rental income is for your flat and compare this to what you have now.
Once you know this, you need to compare what else you could do with the money that may be released from the sale of the property through its increase in value?
It doesn't sound too bad.
Perhaps your sums should be based on the equity in the property. Calculate your return on this and then consider if it is better than what you could achieve by putting the same money elsewhere. Based on what Banks are typically offering I suggest you are probably doing OK.
pp
Perhaps your sums should be based on the equity in the property. Calculate your return on this and then consider if it is better than what you could achieve by putting the same money elsewhere. Based on what Banks are typically offering I suggest you are probably doing OK.
pp
Chaps,
Thanks for the responses. There is an identical property on the market at the moment for £230k, our mortgage is £200k. I guess that makes it £30k equity (I thought we had more than that ... shows what property prices have done, I guess. I think it was valued at £280k when we took out the mortgage, about 3 years ago.)
On that basis, the return on £30k isn't bad.
Rags, you are right - I need to find out how much the potential rental income is. i.e. What I should ask when looking for a new tenant.
Beardy - thanks, yes, and I do claim all of the expenses against tax. Not quite sure what happens when I need to do some redecorating when the current tenants move out (fair wear and tear, they haven't trashed it), but I think that as long as the works aren't "improvements" then you can put them against tax as well.
Oli.
Thanks for the responses. There is an identical property on the market at the moment for £230k, our mortgage is £200k. I guess that makes it £30k equity (I thought we had more than that ... shows what property prices have done, I guess. I think it was valued at £280k when we took out the mortgage, about 3 years ago.)
On that basis, the return on £30k isn't bad.
Rags, you are right - I need to find out how much the potential rental income is. i.e. What I should ask when looking for a new tenant.
Beardy - thanks, yes, and I do claim all of the expenses against tax. Not quite sure what happens when I need to do some redecorating when the current tenants move out (fair wear and tear, they haven't trashed it), but I think that as long as the works aren't "improvements" then you can put them against tax as well.
Oli.
anonymous said:
[redacted]
What's a margin call? Yes, if things get tighter then we can afford to subsidise. Ditto if there is a void or two (although I am aware that we have been very lucky in this respect since we started - the place has been vacant for 2 weeks in 5 years.)
Unlikely to be a large service charge increase or one-off sum; I'm a director of the management company and things are fairly healthy on that front. Good Q to ask tho' - thanks.
Oli.
Gassing Station | Homes, Gardens and DIY | Top of Page | What's New | My Stuff