Fair to work out property yield based on multiple sources?

[sansnom]

Sorry for the lack of response, but this thread seems to have taken on a whole new life since I last posted (!)
Thanks for the info.
Based on this I work out a yield of ~9%.

I'lll put it like this.
I can't pay the mortgage of the £375k flat with its rent alone. Rent simply isn't enough to do so.
But when I combine all the rental income to pay fo the total mortgage amount I will still have around about £1200 after each months deductions (service charge, etc).

As I said originally, I plan on living independantly of this income for a year or so, which is the reason for me thinking about it.
All tenancies will be locked into a guaranteed rent scheme also. To avoid any unpleasantries. I don't have a problem losing money to an agent as long as I have peace of mind, the remaining figure above also includes the letting agents fees.
In the mean time, as I mentioned, I plan to save so that the void period, between the exchange of contract and beginning of tenancy will be covered in terms of mortgage payments.

I know mad rapper and a few others are 100% against the idea, but as I say its not set in stone, I haven't bought anything yet. I'm going away to save a little and will be watching the prices very closely in the mean time.
Its my money and my future at the end of the day, I wouldn't take sucha big step without calculating the risks.

If I've understood you correctly this is fine.

What you're doing is in effect is cross-collateralising the income streams. You're using an under-levered property with excess cashflow to pay for over-levered properties with cashflow deficits.

But this is not the only thing you should be concerned about. You'll also need to worry about shifting values and equity margin calls.

What is the 9% yield on? Price or Debt?

 

[Brum Man]

What you're doing is in effect is cross-collateralising the income streams. You're using an under-levered property with excess cashflow to pay for over-levered properties with cashflow deficits.

Haven't read the whole thread in detail but just on this point, whilst doing this in theory may be OK trying to get a mortgage based on this may be another matter.

Usually mortgage companies will want rent to be at least 100% of yearly interest payments, usually more, in it's own right not based on the rent from the mortgaged property plus other properties that they are more than likely to have no charge over whatsoever.

 

[Sacred]

Haven't read the whole thread in detail but just on this point, whilst doing this in theory may be OK trying to get a mortgage based on this may be another matter.

Usually mortgage companies will want rent to be at least 100% of yearly interest payments, usually more, in it's own right not based on the rent from the mortgaged property plus other properties that they are more than likely to have no charge over whatsoever.

Yes, But I'm not getting a BTL. I'd be getting an extention on my existing remortgage on my house, i.e just taking more money out.
I don't think they will have a problem with this, but I will be going to the broker soon just to see if it IS an option, no point making plans if I can't do it in the first place.
They'll want to know that I can pay the interest payments (getting it interest-only) back each month. And when I show them the figures I don't think there will bea problem.

 

[Marek]

The rental market will always been stable. unless house prices crash a monumentious amount its will be cheaper to rent than buy for a long time to come.

polish tenents around here seem to be dream tenents, they are all pretty dam good, working lots so never around, always seems tidy and rent always on time

hmm i wonder why the poles are heading back home? could it because greedy eas don't mind renting 2 bed house to 12 people?

 

[Rambaud]

Hi




Now. Onto my question.

If I wanted to buy another 2 bedroom flat, for £375k, and let it out AS WELL AS my curent flat. Making it 3 properties that I have rented.
How do I calculate yield? Is it fair to combine each source?

I've worked out based on how I was told to calculate property yeilds that with all 3 rents combined against the capital invested from the bank to have a yield of around abou the 8.5% mark after all deductions.
Based on dividing the total invested capital by rent in each year (x100)

Is this the correct way to do it with rental property or should I be calculating yield solely with mortgage payments/rent?



Any thoughts would be great.

-greg

Yield has nothing to do with any mortgage - it is merely the purchase price and the rent.

There is some merit in combining the properties together, you will need to do so for Income Tax purposes. But I would still want to know how each property is performing.

Have you allowed for void periods?

An anticipated Gross Yield of ~ 8.5% p.a. is the minimum I would be looking for - capital appreciation is unlikely for several years in the current economic climate.

What is your estimated Net Yield?

 

[Stinky]

hmm i wonder why the poles are heading back home? could it because greedy eas don't mind renting 2 bed house to 12 people?

again another anti agent comment.

we are told by the landlord what they are looking for! we dont make it up as we go along!!

get your facts straight mate

 

[Andrew_McP]

again another anti agent comment.

Let's be honest, if you wanted to be popular you'd never have got a job as an EA would you? Nobody likes them, nobody ever will. They're just one of life's necessities... like taking a dump.

To be fair, the problem for estate agents is that they're in a no-win situation. Vendors will always want as much as possible, buyers will always want to pay as little as possible. The EA inevitably gets it in the neck from both sides... except in a rising market where everyone feels they're winning.

That part of this particular property cycle is over now, and it's time for EA's to take the rough years which come with the smooth. Good luck.

Andrew McP

 

[Stinky]

Let's be honest, if you wanted to be popular you'd never have got a job as an EA would you? Nobody likes them, nobody ever will. They're just one of life's necessities... like taking a dump.

To be fair, the problem for estate agents is that they're in a no-win situation. Vendors will always want as much as possible, buyers will always want to pay as little as possible. The EA inevitably gets it in the neck from both sides... except in a rising market where everyone feels they're winning.

That part of this particular property cycle is over now, and it's time for EA's to take the rough years which come with the smooth. Good luck.

Andrew McP

I became an estate agent as i was offered a job here no other reason lol

but i see what your saying

 

[Andrew_McP]

Yield has nothing to do with any mortgage

Ok, now you've lost me.

The interest paid on the mortgage has a direct affect on the yield, surely? It's a cost to the property business, so must be taken into consideration.

Andrew McP

 

[Stinky]

im lost now with the above one to lol

 

[Rambaud]

Ok, now you've lost me.

The interest paid on the mortgage has a direct affect on the yield, surely? It's a cost to the property business, so must be taken into consideration.

Andrew McP

Not when quoting a Gross Yield - but Yes, for a Net Yield.

 

[Hades]

http://news.bbc.co.uk/1/hi/business/7288506.stm

 

[Sacred]

Yield has nothing to do with any mortgage - it is merely the purchase price and the rent.

There is some merit in combining the properties together, you will need to do so for Income Tax purposes. But I would still want to know how each property is performing.

Have you allowed for void periods?

An anticipated Gross Yield of ~ 8.5% p.a. is the minimum I would be looking for - capital appreciation is unlikely for several years in the current economic climate.

What is your estimated Net Yield?

That is net yeild. And Yes, if you read my previous post I will be saving money to deal with void periods. Otherwise I would be losing money in that instance.