# 4.3% yield on buy to let good ?



## bricksguy (3 Nov 2007)

looking for advice have the opportunity to add to my existing portfolio of 6 properties by purchasing in a good location with a minimum yield of 4.3%, all existing properties on interest only with total L-V on all properties of 60% advice appreciated


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## landlord (4 Nov 2007)

bricksguy said:


> looking for advice have the opportunity to add to my existing portfolio of 6 properties by purchasing in a good location with a minimum yield of 4.3%, all existing properties on interest only with total L-V on all properties of 60% advice appreciated


Its fantastic.......if you dont mind sacrificing a potentially massive fall in the value of your asset for a slight gain in monthly cash flow.


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## Howitzer (4 Nov 2007)

bricksguy said:


> looking for advice have the opportunity to add to my existing portfolio of 6 properties by purchasing in a good location with a minimum yield of 4.3%, all existing properties on interest only with total L-V on all properties of 60% advice appreciated


Are you able to get an IO mortgage of less than 4.3%? If not then a yield of 4.3% is largely irrelevant since you'll stll be making a loss on a monthly basis (not including transaction costs or maintenance charges/insurance/wear and tear/voids). Well that's what I would have thought anyway, you may have other insights.


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## lopin10 (4 Nov 2007)

_Hi  lopin 

Please don't forecast property prices on Askaboutmoney. You might read the Posting Guidelines before posting again.

Thanks

Brendan_


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## markowitzman (4 Nov 2007)

I would go for it bricksguy. You should get finance at 0.7% over ecb which may reduce over time. With market so cold at present more opportunities will become evident whilst the herd are jumping out the window. Whilst I agree with not forecasting prices on AAM at present is probably a good idea I think we should be able and ought to discuss presenting opportunities as panic sellers sell to the more professional investor.


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## Howitzer (4 Nov 2007)

markowitzman said:


> I would go for it bricksguy. You should get finance at 0.7% over ecb which may reduce over time. With market so cold at present more opportunities will become evident whilst the herd are jumping out the window. Whilst I agree with not forecasting prices on AAM at present is probably a good idea I think we should be able and ought to discuss presenting opportunities as panic sellers sell to the more professional investor.


On what basis would you go it?


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## markowitzman (4 Nov 2007)

I just think market so slow if he gets a motivated seller under pressure he could well get it for cheaper than he thinks. The contrarian in me thinks this yield is attractive in the current climate and human beings need to rent houses. As a matter of interest how does this initial yield compare to the other properties in your portfolio based on purchase prices?


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## Howitzer (4 Nov 2007)

markowitzman said:


> I just think market so slow if he gets a motivated seller under pressure he could well get it for cheaper than he thinks. The contrarian in me thinks this yield is attractive in the current climate and human beings need to rent houses.


I would have said the yield was pretty poor. 2 years ago it would have been a good yield but rates have increased by 2% since then, your expectations of what constitutes a good yield should also. That yield represents an investment that makes a loss on a day to day basis (ignoring all other costs, and admittedly all other sources of income - access rights, mineral rights, image rights .....)


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## Afuera (5 Nov 2007)

markowitzman said:


> The contrarian in me thinks this yield is attractive in the current climate and human beings need to rent houses.


Are you expecting an improvement in the climate of the rental market anytime soon though? Rising rents and lower interest rates are by no means guaranteed.

I accept your point that a certain portion of the population will want/need to rent, but there is a saturation point to that. The rising numbers of places to rent on Daft (there are currently double the number available than this time last year) suggests that this point may have been reached already in lots of areas. I think the OP really needs to thoroughly analyze the area they are considering buying in to see how viable it is to BTL there.

On top of that, the large inventory of property for sale in Ireland seems to suggest that there is still a large unwinding of the sales market to go.  The amount of property sales in the last 12 months paints a very grim picture when compared with the amount currently available. Buying an investment property now would seem to be rather foolhardy.


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## bricksguy (5 Nov 2007)

thanks guys for advice, the area is extremely good for letting so that should not be a problem, it is in a highly desirable area and the owner is emigrating and needs a quick sale so i have got a 5% reduction or 20k saving on original asking price including all contents so fit costs mininmal on an interest only it will wash its face and when over the longer period capital appreciation should kick in again i am looking at a 10-20 year investment


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## Afuera (5 Nov 2007)

Where exactly is the area? What number of rentals are available there? What number of property is for sale in the same? How do you know it is renting well at levels that would give you your projected 4.3% yield?


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## bricksguy (6 Nov 2007)

i already own a house exact same type in this estate and so i have a good idea of rental trends which are rising yearly, i am thinking long term as a suitable home for my own kids possibly,  thinking of topping up other investment mortgage so as to borrow less than 90%


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## Afuera (6 Nov 2007)

Fair enough. I'm just trying to give you other possible avenues that you should look into before jumping in. Best of luck with the investment should you decide to go for it.


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## bricksguy (6 Nov 2007)

thanks for advice, the way equity markets are at the moment is scary i enjoy looking after tenants and problems that may arise, either way it is a good up market residential area with houses coming on the market fairly rarely, still have not made up my mind entirely even with the above 4% yield


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## JohnBoy (7 Nov 2007)

It is true to say that the equity markets are scary but the irony is that the Irish equity market (at least) is pricing in a very grim outlook for the Irish economy and housing market.

The earnings yields on Irish banks average somewhere between 14% and 15% - admittedly the market is fretting about the earnings hit to the Irish financial sector should the housing market turn sour but even if average earnings were to halve, this part of the Irish equity market would still represent better value than the above mentioned investment property. 

And they are highly liquid in case you need to access the cash.

And the stamp duty is lower on equity transactions.


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## webtax (7 Nov 2007)

JohnBoy said:


> The earnings yields on Irish banks average somewhere between 14% and 15% - admittedly the market is fretting about the earnings hit to the Irish financial sector should the housing market turn sour but even if average earnings were to halve, this part of the Irish equity market would still represent better value than the above mentioned investment property.



the earnings yield for the banks might be 14% but the dividend yield is what counts for investors and thats 4/5%


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## JohnBoy (7 Nov 2007)

Ok - not strictly comparable but the earnings yield implies substantial growth whereas the same cannot be said for residential property in Ireland. But how about this..

On a yield of 4.3% it will take 23.3 years of (gross?) rental income to pay for the property

Taking a p/e of 7 times (approx average for a quoted Irish bank) it will take just 7 years of earnings to pay for the share.

Using this measure the house is over three times more expensive than the shares.

All I am trying to do is provide some food for thought - after all the OP already has six investment properties so perhaps some diversification is in order...?


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## Thomas22 (8 Nov 2007)

In my opinion a 4.3% gross yield is terrible! 
You could get a much better yield in highly defensive stocks with much less risk and hassle.


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## markowitzman (9 Nov 2007)

ah come on Thomas do you not realise you are not comparing like with like. The op is getting leverage on his returns using the bank's money whereas with stocks you are generally not leveraging your returns unless using derivatives.


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## Howitzer (9 Nov 2007)

markowitzman said:


> ah come on Thomas do you not realise you are not comparing like with like. The op is getting leverage on his returns using the bank's money whereas with stocks you are generally not leveraging your returns unless using derivatives.


Just to correct a small matter. The "leverage" in this case is costing the OP more than the asset is earning. The sock at the bottom of my cupboard gives me a better return than that. I'm not advocating equities either, I'm just highlighting the costs versus returns.


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## demoivre (9 Nov 2007)

Howitzer said:


> Just to correct a small matter. The "leverage" in this case is costing the OP more than the asset is earning. The sock at the bottom of my cupboard gives me a better return than that. I'm not advocating equities either, I'm just highlighting the costs versus returns.



Your sock will give give you zilch return one way or the other over the next twenty years. Beause  the cost of funds exceeds the return at present( in this particular case) does not mean that the investment  won't show  a positive return  at the end of twenty years. (  which, imo, is the timeframe for an rpi play)


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## Howitzer (9 Nov 2007)

demoivre said:


> Your sock will give give you zilch return one way or the other over the next twenty years. Beause the cost of funds exceeds the return at present( in this particular case) does not mean that the investment won't show a positive return at the end of twenty years. ( which, imo, is the timeframe for an rpi play)


Well all anyone can know is that the OP would be making a loss for the foreseeable future. Combined with transaction costs it is hard to see the OP being in positive territory for a significent period of time. Every month that you pay more in interest than you receive in rent probably pushes your breakeven point out by another 2 months. Goodbodys [broken link removed] houseprices to fall 8% next year after falling 5% this. I can't tell the future but I can tell when someone is making a loss today. If you have some further insight that allows you to gauge where the value of the asset will be at some point in the future then go for it.


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## demoivre (9 Nov 2007)

Howitzer said:


> Well all anyone can know is that the OP would be making a loss for the foreseeable future. Combined with transaction costs it is hard to see the OP being in positive territory for a significent period of time. Every month that you pay more in interest than you receive in rent probably pushes your breakeven point out by another 2 months. Goodbodys [broken link removed] houseprices to fall 8% next year after falling 5% this. I can't tell the future but I can tell when someone is making a loss today. If you have some further insight that allows you to gauge where the value of the asset will be at some point in the future then go for it.



I know nobody, bar none, who has made any serious money over the last twenty years or so in any asset class , that appraises an investment solely on the basis of return/cost today - it's a farcical approach imo. I couldn't care less what Goodbody or anyone else is forecasting for property prices for the future - you can't tar all property types with the same brush.What we can say is that YTD property prices are down about 3.5%  which puts a lot of the drivel about crashes in to perspective (make yourself a cuppa, put the feet up and go back and read the house price crash predictions for 2007 made in 2006 in the house price sentiment thread - it's hilarious stuff), though I always felt that being cooked up in a 350 sq. ft., rented bedsit tended to distort some peoples view of reality.


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## markowitzman (9 Nov 2007)

demoivre I have to agree with you.
I have a similar portfolio to the op and am naturally bullish in view of my experience in picking a property investment and the general demographics.
If property goes up down sideways or ar**eways  in the short term  is pretty much immaterial  to me  as over the  long term  it will  appreciate.
There are plenty of ways to make money in the short term  but property  historically is not one.  The recent  bubble is the exception rather than the rule. Re the leverage I assumed my effective interest rate is less tax relief which leaves it at 3%odd which is less than bank deposit rates which to my mind makes it a no brainer to leverage into residential property with good rent roll? Couple this with section 23 etc umbrella from any tax liability this makes the property portfolio a rock solid long term investment but don't expect Goodbody to tell you this!


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## Howitzer (9 Nov 2007)

markowitzman said:


> Re the leverage I assumed my effective interest rate is less tax relief which leaves it at 3%odd which is less than bank deposit rates which to my mind makes it a no brainer to leverage into residential property with good rent roll? Couple this with section 23 etc umbrella from any tax liability this makes the property portfolio a rock solid long term investment but don't expect Goodbody to tell you this!


Are any of these points relevant to the OPs scenario as has been described in the thread? The OP will not be receiving any S23 relief. Their return won't be 3% but -.45%

I've answering the OPs question with explicit refernce to the figures they have provided. I referenced the goddbodys article to highlight that noone can predict the future. Speculating on the future of property prices can be done down the pub.


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## markowitzman (9 Nov 2007)

> Speculating on the future of property prices can be done down the pub.


Inthe short term yes but over what 20 year period did property lose value?
Howitzer op's return is not 3% but his effective interest rate is less than bank deposit rates or inflation.


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## Howitzer (9 Nov 2007)

markowitzman said:


> Howitzer op's return is not 3% but his effective interest rate is less than bank deposit rates or inflation.


I never said it was. I said his return was -.45%. You said your return was 3%. Sorry for the confusion.


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## bricksguy (9 Nov 2007)

my question is generating good debate, as part of my portfolio i have a s50 apt which covers any tax liabilities, as i said i have an existing  house in this estate which has seen rent increases year on year with no problem i bought it to include all contents so i have nothing really to put in bar tenants in the new year, and hopefully interest rates will remain static or fall, at 370k and 16k rent roll it is a long term investment


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## JohnBoy (10 Nov 2007)

markowitzman said:


> Inthe short term yes but over what 20 year period did property lose value?
> Howitzer op's return is not 3% but his effective interest rate is less than bank deposit rates or inflation.


 
erm...Japan is making a good stab at that particular record at the moment. Germany has had maybe two years of property price increases in the past 12 years. Indeed, look at any developed country that has had to endure a severe financial and or economic shock and you will find protracted periods of falling real prices. 

As you say this is a 20 year investment but this is a long period of time over which to accept such a poor relative return.


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