Buy to Let with Uncertain Future

Oh yes they are! :-)

Initially, yes, but..

That's all very true, but nevertheless it is also true that real time rental yields are determined by a property's real time value (and by the rent achievable, obviously).

Yield and gearing determines the investor's overall return, and in a hypothetical situation where actual rent on a property remains constant but the property's value goes up and down, then clearly yield will go down and up, affecting the investor's return. The investor, noticing that property value is rising but achievable rent is not keeping up, will have to make a commercial decision whether to smile because rising value is boosting his potential return in terms of future realisable gains, or to frown because he realises that he could make more money by selling up and investing the proceeds in something with a higher yield.

But 'real time' rental yields only apply to people who are buying now. Its just the same a the yield on gilts.

No. The yield to the investor will remain the same.

The last word should be 'return'.

Dividend Yield (%) This value is the current percentage dividend yield based on the present cash dividend rate. It is calculated as the Indicated Annual Dividend divided by the current Price, multiplied by 100.

i.e. current price - not the price paid at the outset

"john boyle" wrote

John, if you had two identical landlords, owning two identical properties, valued at identical amounts with identical rents, then wouldn't you expect the "yield" to be shown as the same on both? But with your definition, they would be different if landlord 1 happened to buy 10 years ago but landlord 2 bought just yesterday.

Also, what happens at a "rent review"? To put the actual "rental yield" equal to that corresponding to the "rack rent", how would you determine this if you don't consider *current* value?

No. Real time yield is the ratio of currently achievable rent to current property value, not to what it cost when I bought it.

No it won't. Suppose I bought a BTL flat 2 years ago for £100k, and was able to achieve a rent of £7k pa. Yield is 7%. Suppose the flat is now worth £140k and I'm still only getting £7k rent. I put it to you that the yield is now 5%. That's because the figure based on the present value is the one which is really more relevant to me to help me decide whether to sell up and stuff the proceeds into gilts instead. It's the anticipated gilts yield I'd need to compare with my "real time" rental yield. The price I paid 2 years ago is not relevant.

Perhaps. How do you distinguish one from t'other? It's the gearing, innit? Using the above example, if I have an 80% loan on the flat, costing 5%, and ignoring other expenses, then my return based on a 7% yield would be

(£100k*0.07 - £80k*0.05)/£20k = 15%

Incidentally, if the value goes up but the rent doesn't, then the yield drop cancels out the value gain, so the return stays the same. This'll be what you mean by saying "the yield to the investor will remain the same".

Trouble is I can't improve my return with gilts because I can't gear to advantage. I can't get a 5% loan to invest in gilts, and even if I could it would likely cost more than they would yield, so my return would be negative.

In article , Tim writes

That's why valuers talk of initial yields, equivalent yields, running yields and reversionary yields.

Let's imagine I pay £200,000 for an investment property. Let's also imagine I rent it out for £1,000 per month - no expenses. Yield is 6%.

Let's now imagine that someone builds a nuclear waste processing plant next door, and the market value of my property falls to £10,000.

What would someone be willing to pay to rent this place now? Certainly not £1,000 per month. In 10 months, they would have enough money to buy the place, and if they were earning enough to pay £1,000 in rent, they would certainly have the income multiple for a £10,000 mortgage.

In message , ginger writes

Er, yes thanks for that information which I think is universally accepted. Why are you quoting it though?

We arent talking about dividend yield, but rental yield.

I cant disagree with any of that - but we are moving from my original point, which is that the 10 year landlord IS getting a higher return on his investment than the new landlord. You agree with that dont you?

This is not relevant. The drop in rent is not because of the drop in value, it is because the waste plant has caused the rent to drop below the loan payment.

"ginger" wrote

renting out that

You wouldn't even need to have 'won' it - there must be many more people who have *inherited* houses, which they therefore paid nothing for. I must say, an infinite return does sound quite appetising!

And you'd still be getting an infinite return if you were only charging £1/year rent!

yesiree, that's for me!

The income / the value of the house at the time you won it?

"Jonathan Bryce" wrote

In that case, why don't you use "the value of the house at the time you bought it", if you buy? Why use the actual purchase price, which isn't necessarily the same as it's value when you buy?

"Jonathan Bryce" wrote

Never heard of a good *bargain* ?? :-)

In message , ginger writes

That proves my definition is valied doesnt it?

The term 'yield' is used in different ways for different purposes. Do you accept that a yield for a holder of gilts is fixed at the day of purchase?

NOWHERE am I saying that my definition is universal or the only measure

- it isnt. I am merely saying that if you are looking to determine what the return on your investment is, then my method tells you. The current yield method, which you describe, Is a good way of comparing what you are getting with what you could get elsewhere.

Brining dividend yield into it is as a helpful comparison as milk yield or crop yield.

In message , ginger writes

Of course.

Whether you could do better in the market would be determined by the running yield though.

Of course not. He is getting a higher return on his *original* investment. But his *real* investment now isn't what he put in yesteryear but what it's worth now, because if back then he paid a fifth of what it's worth now, by not selling it now, he *has* its whole value invested in it, not just his original money.

"john boyle" wrote

Hmmm. If you had put some money into a bank savings account around 20 years ago, which has now quadrupled with interest, and the bank says it gives you "3% interest" now, then - down at the Pub, do you say 'I put some money in the bank a while back, now I'm getting 12% on it'? [Eg 3% of 400(now) being the same as 12% of 100(initially).]