Just wondering what people's yield would have to be before buying a buy to let with cash?

Hello,

In answer to the original question:

For a city location 10% Gross

For a large town location 15% Gross
 
Bill90. said:
buying a buy to let with cash.
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Unpopular opinion for the fiscally conservative AAM probably - but I would look to use conservative fixed term debt to achieve higher cash on cash returns across a number of properties while ultimately reducing the potential volatility of your cash flows....this will enhance your underlying equity returns if your gross yield (say 10%) exceeds a debt yield/mortgage cost (likely 4.x%)..you the borrower collect the spread between the two (commonly referred to as the debt yield (gross yield - mortgage interest rate)`... and then you also get a levered return any capital appreciation that may occur.

The first level thinking on all this of course is debt is bad, a debt free BTL is better...buy for cash, pick your tenants well and sleep well at night ......but second level thinking is to think for a moment how little sleep you'll get dumping all your cash into a single property in a single location with a single credit exposure to a single tenant with a single employer in a single industry.....your exposing all your cash flows on your capital in this way.....so a debt free BTL IMO exposes you to MORE risk than buying three properties at 66% LTV in different locations in different developments with different tenants in different industries with different employers.

It's the diversification of tenant risk, development risk & location risk..which is a no brainer IMO....that it enhances your cash on cash returns is the icing on the cake.

Does this add a little bit of extra property management into the mix? Are you taking some incremental interest rate risk?Absolutely but it drops the potential volatility of your cash flows way down while increasing your RoE...its diversification at its best....conservatively financed with importantly lengthy say 10yr fixed rate debt (no variable) the returns over the period could be predictable and very acceptable and far exceed equity index returns which sit in some cases at 99th percentile of expensive (SPY). If you were unlucky with one tenant in one property (non-payer essential PRTB squatter) your other two properties will keep producing cash flows which would keep the show on the road in terms of return on capital.

The alternative bear case reality.....a single BTL bought with 100% of your investable cash.....where the tenant goes PRTB squatter on you while physically destroying the underlying property before he/she leaves...is IMO a very risky proposition for what sounds like 100% of your liquid net worth (in fact I might suggest two BTL's consuming two thirds of your cash and 33% of cash in one ETF (non-US)).
 
I read this last reply - my brain is now scrambled, can't understand what you are trying to say. Sorry
 
Wow.

Actually I agree with you despite the extravagant prose. Invest €300k in a property and get a 8% return versus invest €30k in a property, borrow €270k at 5% gives a 35% return.
 
I think there were suggesting low leverage!

Invest €300k cash in two 300k properties and get a loan of 300k at 5 percent. Get 33k gross I.e. (600*8%) - (300*5%).

Versus

Invest €300k cash in one 300k property with 8 percent yield, get 24k gross.
 
presidenttttt said:
Are most Dublin apartment blocks not blighted with outrageous management fees though? Killing yield without actually building a sink fund in many cases for the bigger external works that come after a period of time.
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Not necessarily - I've seen everything from 500pa to a whopping 2200pa. One large development is around 900pa.
 
Just bear in the mind the reality of this in Ireland - that if you tenant decides to stop paying, then the system is built so that in reality it will take you two full years to physically get them out of it.

In that time they are not paying rent.
In that time there is a nonzero chance they may wreck the place with no recourse.

Personally, although the returns can be good, I would not do it myself.
 
I am not sure there is many provincial towns showing 15% yield on any reasonable quality stock? Dublin neighbour counties commuter towns are under 10%.

Has Ruben86 disappeared?
 
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