At what yield will investors purchase property
- Thread starter Bronte
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A very interesting question. Yields on commercial property would differ from that applicable to residential units. Realistically the quality of the tenant and sustainability of the RI is more important than the yield based on current rent roll. I'm surprised by the high yields currently being obtained on commercial sales (particularly Alsops). In our business, we normally value commercial units (Outside prime locations ) at 10% yield. An excellent return if tenancy risk is acceptable!!
Wouldn't touch anything under 10% - and even then it would have to be in very good condition with little chance of repairs/refurbishment for several years.
10% looks greedy but, based on most lettings, the owner will use letting agents who also "manage" the property (basically deal with the tenant and collect rent) -that could mean 10% goes down to 9%.
I don't mean the company that manages the building which could mean another 1% reduction -but that may include building insurance, rubbish removal etc.
Then furniture inc. oven.fridge ,freezer. Spread over years the cost could be €1.000 p.a.- that may be nearly another reduction of 1% yield..
If one is lucky enough to have 100% occupancy then no need to reduce the percentage yield estimate. But it would be wise to cost in another 1/2 percent in lost rentals-basically one month empty every two years.
Again one may be lucky enough not to paint, redecorate and ,again, one should estimate another half percent.
If that's too high then throw in the property charge and other fees.
Basically, I think 10% gross could mean 6% pre-tax-it depends on one's luck to some degree. I'm considering 4% total costs and contingencies within a "normal" range, but one could be very unlucky......
.. a bad tenant, big damge, months of no rent, hassle, court cases. I haven't had these.But reading many posts over the years a lot of owners have.
Anyway, getting back to the 6% pre-tax yield. On the higher tax rate that means one is earning 3 % nett post tax profit. Ain't great is it ?
That's still better than the 1% nett post tax that will soon be the interest from banks.
But if interest rates increase in a few years then 3% post tax nett rental income looks bad..
SO, 10% GROSS RENTAL YIELD IS VERY VERY MINIMUM.
P.S. Just seen in Allsops a two bedroom apt nr Stephens Green. rent of 15.600 p.a. guide price of 190.000. To me ,that's far too dear unless there's a good chance of increasing what looks like a low rent for the area .
10% looks greedy but, based on most lettings, the owner will use letting agents who also "manage" the property (basically deal with the tenant and collect rent) -that could mean 10% goes down to 9%.
I don't mean the company that manages the building which could mean another 1% reduction -but that may include building insurance, rubbish removal etc.
Then furniture inc. oven.fridge ,freezer. Spread over years the cost could be €1.000 p.a.- that may be nearly another reduction of 1% yield..
If one is lucky enough to have 100% occupancy then no need to reduce the percentage yield estimate. But it would be wise to cost in another 1/2 percent in lost rentals-basically one month empty every two years.
Again one may be lucky enough not to paint, redecorate and ,again, one should estimate another half percent.
If that's too high then throw in the property charge and other fees.
Basically, I think 10% gross could mean 6% pre-tax-it depends on one's luck to some degree. I'm considering 4% total costs and contingencies within a "normal" range, but one could be very unlucky......
.. a bad tenant, big damge, months of no rent, hassle, court cases. I haven't had these.But reading many posts over the years a lot of owners have.
Anyway, getting back to the 6% pre-tax yield. On the higher tax rate that means one is earning 3 % nett post tax profit. Ain't great is it ?
That's still better than the 1% nett post tax that will soon be the interest from banks.
But if interest rates increase in a few years then 3% post tax nett rental income looks bad..
SO, 10% GROSS RENTAL YIELD IS VERY VERY MINIMUM.
P.S. Just seen in Allsops a two bedroom apt nr Stephens Green. rent of 15.600 p.a. guide price of 190.000. To me ,that's far too dear unless there's a good chance of increasing what looks like a low rent for the area .
I think the main problem at the moment is that a yield of 10% contains a sizeable risk premium for purchasing a house in a falling market.
Its great to get a property yielding 10%, but no good at all if the same property falls in value by 10% for each of the next three years.
The yield that investors are looking for, to a large extent, is about their individual attitude to risk,factoring in assumptions about the future direction of rents and house prices.
Personally, I would be happy with rent yields in the 10% to 15% range, depending on the property, its location and its desirability.
Its great to get a property yielding 10%, but no good at all if the same property falls in value by 10% for each of the next three years.
The yield that investors are looking for, to a large extent, is about their individual attitude to risk,factoring in assumptions about the future direction of rents and house prices.
Personally, I would be happy with rent yields in the 10% to 15% range, depending on the property, its location and its desirability.
Brendan Burgess
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Hi folks
A very interesting thread and I think that the points are well made.
It's likely that any further contributions will break our ban on speculating about house prices.
Brendan
A very interesting thread and I think that the points are well made.
It's likely that any further contributions will break our ban on speculating about house prices.
Brendan
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