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Yield for residential property investment

by 2fast2foolish 07 February 2009 |

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I'm starting to think about buying a property to let, given some sharp falls in property near where I live. Been quite a while since I last did it.

Assuming I can fund an investment at 5% (mortgage and savings). I am assuming rent rises with inflation and I can expect capital growth to compensate for the risk etc. But how much extra yield do I need to factor in for other factors i.e. expenses etc. Is there a rule of thumb for the yield to expect?

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MikeGG1 posted
Any legal or other costs of the purchase should be regarded as part of the capital cost.

Don't forget that you have to declare it as a Buy-to-Let Mortgage, which usually has a higher interest than a normal mortgage.

The extras depend on the type of let and quality of tenant that you get.

Agents fees are the prime expense plus landlord certificates.

If you get a company let then they will normally be responsible for any restoration required at the end of the let. Otherwise you have to make allowance for gaps between tenants, any restoration needed not covered by a deposit, non-payment of rent, possible cost of court action, etc.
Posted on 07 February 2009 | Love 0 loves Report
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Birtles posted
I'm not sure whether assuming rent to be linked with inflation is realistic.

My old land lady tried to put our rent up in line with inflation. We moved out for this reason. She has had to rent it out for less money thant we were paying a year ago.
Posted on 08 February 2009 | Love 0 loves Report
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meita posted
I'd also question the link between inflation and rental yields.

Where I live (Surrey, university town - e.g. strong and stable rental market) rents have been coming down drastically. I'd hazard that they are at least 10% lower now than a year ago. (In that year, we've had inflation of over 5% at times...) Estate agents say that there are now twice as many rental properties on offer than a year ago. Tenants (especially good ones, the ones you want for your properties) can pick and choose, and still haggle down the price.

The rental property we moved out of in December has not yet found a new tenant. They have reduced the rent by more than 10% but are still empty. If they had offered us this reduction of 10%, we would still have left, because we would still have been overpaying.

Posted on 09 February 2009 | Love 0 loves Report

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