General (main property discussion here) - What minimum yields do you guys take for a property?

Hi all,

I'm just wondering what the minimum yield you other landlords decide to buy a property at?

Mine is 10%. So I'm limited to where I can buy.

Anyone have similar or lower targets?

Simon

Sorry four being thick Simon, but how do you work out the % yield.

Sarah

Hi Sarah, Not knowing what yield is doesnt make you thick...hope not coz I didnt last year!

If a property is renting out at say £350 pcm and the cost to buy that property is £50000, then you multiply the rent by 12 for the year and divide that into £50000.

You then multiply that by 100 and it gives you a percentage.

£350x12/£50000

In this case its 8.4%. But this is gross yield, net yield is the same as above but with all expenses for the letting, insurance,VAT etc taken off the rental figure.

Hope that helps. Simon

Yes, 10% is comfortable Simon.

Trouble is, you have to take into account void rates, risk of bad tenants, etc. The higher the yield often means the greater chance of not achieving 100% occupancy.

If you look at the HMOs on here, there's one I've seen for nearly 20%!! You'd obviously be pricing in less than full occupancy all year round, otherwise noone would sell at that level!

John

Yeah its tough to keep the balance.

Mind you if we are buying at the lower end of the market, where people cant really afford to keep on moving, there may possibly be less void periods.

Yeah, I've got a mate who buys DSS places precisely for this reason. Rent is guaranteed (if sometimes delayed for periods as the DSS cock it up every now and then, but you get it all eventually). Single mothers may have little incentive to move, and if they've been there a while and want to stay, then everyone's happy!

John

Hi there, i have some soft ware that works out the yeild for you if your interested please let me know and ill email it to you.

alex @oakhillmortgages.co.uk

I go for a minimum of 8% as 10% is very hard to find. I think if you can earn an extra £100 a month after expenses you have done well on the lower end properties. Currently buying in Manchester, property for £49k, rent at £80 per week, giving a gross yield of 8.5%. This is going to be my strategy this year, unless there are drastic changes in the market. Buy £50k properties with similar yields, total cost about £10k per property. Anyone interested in these types of properties, send me an email. zubair@ip3.co.uk

Whereabouts in Manchester are these properties Zubair? I have a house in Rusholme and it has served me well. Terracedhouses are solid and seem very good rental properties.

Is this what sort of property you are looking at?

Simon

Yes, good old terraced houses. Openshawe, Blackley, Moston. These kind of areas where the government is also spending money on regeneration. Prices below £60k always have room for growth, and no stamp duty so even better.

10%

Alex M

Calculating gross yields is always a good starter however I would always look at net yield next because that is what will be crucial to your cashflow. For example two properties 10% gross yield prop 1 freehold terraced house = letting costs/insurance = 8% net yield prop 2 leasehold flat = letting costs/insurance/service chargese = 6% net yield

Also HMO's usually have a much higher management charge and need more maintenance so that would in turn effect net yield. Still 10% gross yield on a freehold property seems good in this market.

john simpson mortgage broker/property investor johns@mortgageforce.co.uk

As a newbie (yet to buy my first property) I am looking for at least 8-10%. I want to be in a position to do this full time and use the money to put deposits down on other properties. It may take a while but I have to start somewhere.

like your stratagy frank. mine is the same. i have already bought off this site this year and interested in couple of others.

let me know if you need any advice / want to discuss anything.

tom

Just read the Seven Pillars of Buy-to-let wisdom and the author says he never goes for less than 12%. I have yet to enter the b-t-l market but nothing I've seen comes anywhere near that yield? Am I right in assuming his level is very optomistic in the current market?

Hi Jane,

I too have read that book and others that Ajay has written.Its getting more and more difficult to find these places. I am getting 4 properties in Scotland at the moment and they are yielding between 10% and 12.5%. But this is getting harder and harder.

These areas that are yielding in this sort of bracket arent the best areas, but then thats to be expected.

I bought a house in Rusholme in Dec 99, I rented it out after a year of messing about working abroad and not really being interested in the rental game. But that was yielding in at 29% (Gross).It was next door to Moss Side, if you dont know Moss Side its a bit rough to say the least, but now its getting better and better all the time, so I'm hoping this same thing will happen to the properties I'm buying in Scotland.

It may take a few years, but property is a long term investment, so not to worry, especially if I'm getting an income from them.

If you like,e-mail me and I'll tell you more.

simon.heald@telecity.com

Cheers

Hi Tom

"like your strategy frank."

Thanks.

"let me know if you need any advice / want to discuss anything. "

Thanks for that. If I need anything I will be sure to remember to ask you.

TO JANE

"Am I right in assuming his level is very optomistic in the current market?"

Yes it is getting harder. But one thing I do is think about putting a bigger deposit down to enable me to make profit, and hopefully good profit, per month. I know that is not how yield is calculated traditionally, but if it works, hey why not.

5.4 % yield.

But with 14.8% capital growth in last 12 months.