The Magical 7% Yield and an Overvalued Global Property Market

[ringledman]

I have given this overseas property lark a lot of thought recently and come to the conclusion that the BARE MINIMUM gross yield to accept anywhere in the world is 7%.

This is a bare minimum... With global growth stalling, you must be aware that if your property is rising in value at an amount less than your negative cash flow then this represents a poor investment.

Any investment property opportunity of less than 7% should be tossed away and the agent told to take a hike.

Why do I believe this?

1) Costs of investing overseas are huge and totally missunderstood by most purchasers (I have learnt my lesson here!).

Forgeting purchase and resale costs (which you need to budget 10%-15% for at least - regardless of the bull that agents will say is less than this), the annual charges from every tom, dick and harry selling you overinflated services can add up to a good 3-4% of purchase costs.

One must Allow for-

Agent fees
Insurance
Mortgage Life Insurance
Mortgage Default Insurance
Accountancy Fees
Management Charges
Parking Space Charges
Maintenance
Void Periods
Furniture
Currency Exchange


2) Any investment in any asset must be based on the premise of what your return on capital is. 7% bare minimum yield, inverted represents a price to earnings of 14 times. This has been researched as TYPICAL FAIR VALUE FOR ANY ASSET.

For those with time on their hands, the email links below are extremely good reads on the matter of 'Fair Value'.

14 times is the holy grail of investing and represents fair value for most assets. Anything less is cheap, i.e. a property or stock yielding 10% represents good value and a property or stock yielding 4% terrible overvalue.

So the conclusion I draw is 7% is the minimum. Where in the world can you get this at reasonable risk (i.e. within the EU)??? Not many places!

So the conclusion is Global Property is still generally overpriced in 95% of countries. Avoid property, avoid trying to catch a falling knife (global property is far from bottoming out!) and instead invest in assets that are cheap by historical standards - i.e. STOCKS & COMMODITIES.


http://www.marketoracle.co.uk/Article5519.html

This fair-value concept is very important to understand. Why 14x earnings? Over centuries, across many stock markets in many great nations, 14x earnings has simply been the long-term average valuation for common stocks. Sometimes valuations are higher, sometimes lower, but they always oscillate around a secular mathematical average of 14x. While long-established historical validity is enough proof, this number is quite logical too.

Stock markets exist solely to facilitate capital transfers between those with surplus capital (savers, investors) and those who need capital (debtors in a loose sense, companies). In order to transfer this capital, both sides of the deal need a fair and mutually-beneficial exchange. If capital is too cheap, investors won't offer it up for investment. If it is too expensive, companies won't want to “borrow” it. 14x is just right for both parties.

Interestingly the inverse of 14x earnings is a 7.1% yield. If an investor buys stock at a 14x P/E, it will take the company 14 years to fully earn back the price he paid. Without compounding, this translates to 7% or so. 7% is both a fair rate of return for investors' hard-earned capital and a fair price to pay by companies who need this capital. All over the world for at least hundreds of years, capital has flowed freely at 14x and 7%.
Stock markets oscillate around this 14x fair-value level because this is where the markets clear, all investors with surplus capital have the opportunity to invest it and all companies that want surplus capital have the opportunity to procure it.

So this fair-value concept for stocks is not only historically verifiable, but it is eminently logical too. After 8 long years of mean reverting, it is exciting to see the Dow fairly valued again.

This 14x fair-value point is also the anchor from which undervaluation and overvaluation are objectively measured. At half fair value, 7x earnings, stocks are very cheap historically. As soon as you see 7x earnings in the major stock indexes, it is time to throw every dollar you've got at the deeply undervalued stock markets. Such levels are only seen at the end of 17-year secular bears, like 1982.


[broken link removed]

In the US, analysts claim that, in the long run, house prices should be equal to between 12 and 14 times earnings. This means that if a house is generating a rent of $10,000 a year, it must be worth between $120,000 and $140,000 a year.

Apply this test to Ireland. A quick search of Daft.ie will reveal, for example, that a three-bedroom house in Co Wicklow - advertised as an investment property - is on sale for €289,000.

The same website tells us that the average rent for a three-bed in Arklow is €850. So let us say that, in the best possible case, this place is rented for 11 profitable months a year - the final month’s rent goes on various costs. The implication from the American model is that the house is worth about €122,000.

The implication from this, compared to the advertised price of €289,000, is that the house is still wildly overvalued. The Irish calculation means that the house is trading at 31 times its annual yield. This clearly needs to fall dramatically by close to 60 per cent for it to make any financial sense to buy.

So one of the factors impinging on Ireland’s recovery is that we have to see house prices fall dramatically for any investor in their right mind to get back into the market. As long as estate agents, banks and builders are in denial about where prices need to go, we will not have a platform for any recovery.

 

[DonKing]

Apply this test to Ireland. A quick search of Daft.ie will reveal, for example, that a three-bedroom house in Co Wicklow - advertised as an investment property - is on sale for €289,000.

The same website tells us that the average rent for a three-bed in Arklow is €850. So let us say that, in the best possible case, this place is rented for 11 profitable months a year - the final month’s rent goes on various costs. The implication from the American model is that the house is worth about €122,000.

The implication from this, compared to the advertised price of €289,000, is that the house is still wildly overvalued. The Irish calculation means that the house is trading at 31 times its annual yield. This clearly needs to fall dramatically by close to 60 per cent for it to make any financial sense to buy.

So one of the factors impinging on Ireland’s recovery is that we have to see house prices fall dramatically for any investor in their right mind to get back into the market. As long as estate agents, banks and builders are in denial about where prices need to go, we will not have a platform for any recovery.

This would be true if all properties were rental properties. People want to buy in certain areas to live and would have various reasons for choosing that area such as schools, local amenities, family, etc.etc. When buying a home, I would say most people don't be too interested in how much rental income they would get in there home...why would they? The price comes down to supply and demand in that particular area.

The P/E ratio should have an impact on the price investors pay for property but it should not have an impact on what residential purchasers are prepared to pay for property. That is why desirable areas sometimes don't make sense from an investment perspective as the rental income available does not match the higher purchase prices.

 

[GDE]

interesting read - ive been saying this to my clients for years, just not in such a technical way.
I think that the fundamentals of whats mentioned are the reasons that over the last 3-5 years theres been a scramble for the "next emerging market" ie. the cape verde's etc.

As far as Im concerned yields follow a simple growth curve with 3 points on it relating to the market - Emerging Market, Consolidated Market, Mature Market.
With 7% and over in an emerging state, 5-7% in a consolidated market and then less then 5% in the mature stage, or to put it another way when the market is saturated/boom has ended.

The problem I think we have seen in the last few years is that because there has been such a scramble for the new markets that the progression from emerging to mature has been accelerated and so properties are getting overvalued too quick, with massive amounts of building in a short space of time, so the yields disappear unless you got in early.

 

[Martin77]

I do not give investment advice. I do not work in financial services. I can only share what I am thinking as an investor. I'd like other people to tell me what they're thinking too (even if I may disagree with it) as I'm sure I can learn something somewhere.

Well, whilst I think 7% is perhaps an over simplification, I can't help thinking that the underlying message is correct. I have modelled a lot of investments over the last 2 years and nearly always come to the conclusion that the risk/reward ratio was skewed, and that the gain was not realised uintil too late or the risk was too high. For example, I looked at a share in a container ship. The rate of return on investment looked fantastic: over 10%. Downside was that I didn't believe the container market would continue growing as they predicted, and that the exit point was too far in the future with little chance of being able to exit early (low liquidity). I don't need 10% yield. Average of 7.2% would be fine by me. I can live on that after taking into account inflation and tax. Was I right about those investments? Only time will tell.

My own view at this time is that a large number of investments in all assets were based on the yield + growth story. "Yes, you only get 4% yield, but look at the potential for capital growth!" Add the growth on and you came to over 7%. So if a property "washed its face" and paid the mortgage, everything was going to be OK. I don't think the current market is going to behave that way.

Cash has been king for the last year or so (I did predict that on this site, although I was tempted back in to the markets after the initial 25% drop only to be burned in the second bear market drop in October and November.)

My prediction now is that cash will not be king for much longer for one simple reason: the yield on deposit accounts is going to plummet pretty soon as the governments issue huge amounts of bonds. They want consumers to spend, so they'll make saving unattractive by whatever means they can, either by printing more money to cause inflation, or by issuing bonds to bring down yield, or by taxing savings.

I feel government bonds are the next bubble (assuming we don't head into serious deflation) I can't get excitied about 2-3% yield over 10 years. You have to be pretty pessimistic to believe that is a good deal, or to only be in for the ultra short term and wait to sell very soon once risk appetite returns. I think that you have to believe in a "lost decade" scenario like Japan for you to come out ahead on that one in the long term.

Corporate bonds are incredibly attractive if you think that we are not going to hit a real high of default rates. I have a pretty large proportion of my investments in corporate bonds now. Spreads over government bonds are at severly stressed levels: the spread has actually increased as government bond yields have fallen. Achievable yields are anything from 7 to 11% after costs and tax if they don't default and still manage to pay the coupon. If someone had asked me a year ago: do you want to own Euro debt in a major French bank paying interest at 10% pa? I'd have said "you must be joking? Who is offering that?" Well there are plenty to buy now. My assumption of course is that the French government is not going to let a major retail bank fail and that they would protect the bond holders but not the equity holders in any restructuring. So far that has been pretty much the pattern in these bail outs in Europe and the US: equity holders get slammed and debt holders are left untouched.

So that leaves stocks and property. (I don't see how a private investor can play the commodity story directly and I wouldn't want to either: same for currency markets)

Stocks are already a yield story as no-one is predicting earnings growth, and there are attractive valuations in some sectors (even allowing for the fact that profits may fall much further)

One strategy I have seen some funds playing is the notion of buying a basket with a wide spread of badly beaten up stocks. They call it "50 dogs." They contend that of the 50, about 25% will go bust and you will lose everything, 50% will be virtually flat, but 25% will go ballistic as they recover to a near normal p/e and are taken out in a merger. This has happened in the previous donwturns. But I think it sounds too much like the CDO story for my liking: "Sure the underlying assets are crap. We know they're crap. But not all of them will tank......"

But since this is primarily a property forum, here's my on topic contribution.

I believe that inflation is going to be pretty much 0 or slightly negative for the next 5 years. There is a chance of it running away in either direction, but I don't think it will.

I believe that mortgages are going to remain tight. Leverage is a bad word now. The days of getting someone else to fund your property investment through gearing may be over for our generation. Has anyone tried to get a buy to let mortgage recently? I doubt you'll get 70% LTV any more. But that also applies to normal buyers, which may support the rental market. There are going to be a good number of people with poor credit ratings out there.

My basic tennet is that good old yield investing is going to come back into fashion.

The pound sterling is also at historic lows. That also makes it more attractive to look at the UK now. Even with relatively stable sterling prices, it is getting cheaper for Euro based investors. Currency plays are generally a mugs game, but at least it may be working slightly in your favour at this time.

The bottom line is that I want to see all my profits from my investments in whatever asset as a predictable yield i.e. cash flow, whether rental from property or coupon from a bond or dividend from a share. Then I can reinvest it how I like, and I don't have to time my exit to realise a gain. No "jam tomorrow" stories.

So 7% gross yield, with 0% inflation wouldn't be so bad.

I'll actually look for distressed assets yielding around 8-10% though.

Prices are stretched in the credit markets, so I want some serious cover against any unknown problems and further price falls. Why settle for long term historic norms of return in historically stressed times?

Is it time to start looking at becoming a (slum) landlord in the UK based on a euro investment without a mortgage for a house suitable for a family (possibly with government guaranteed rental because they are on benefits)? That strategy has worked for others on the long term.

Anyone seen any opportunities like that in the current property markets?

My alternative play is an investment in shares of a property fund that owns prime retail space in European city centres, has low gearing, with long term rental contracts and has yielded over 7% long-term based on the rental income and the current share price (stripping out gains due to asset value variations). It will be volatile, but I think it has now reached the point where the share price offers true value long term.

 

[Purple]

Great post Martin.

 

[Martin77]

One other fact I forgot to mention to show you how stressed the credit markets still are. The yield on the 3 month Treasury Bill briefly dipped below zero the other day. Think about that. Someone was so scared about being able to park their money somewhere safely for 3 months and get it all back that they were prepared to pay the US government to store it for them rather than risk keeping it in any other asset or account.

see http://www.nytimes.com/2008/12/10/business/10markets.html?em

It still remains to be seen how this pans out on the housing market: whether lower government interest rates will lead to lower real lending rates between banks which leads to lower interest rates on mortgages which underpins the housing market. That would be the good news. Or it could mean that everyone is now so scared that no one will invest and deflation will kick in accelerating the housing market downturn uncontrollably. That would be very bad news.

But if you've evaluated your investment based on an acceptable long term yield from rental, you can either hold on for a recovery of the capital value if the market dips and hopefully enjoy the cash flow in the meantime assuming you can still rent it out, or cash out if the market is very strong and there is any unexpected capital gain. That's the advantage of this approach .... if you can find such opportunities.

 

[VOR]

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The quote below is taken from the RBS Real Estate Strategy communication issue on 5th December.

"At present, the availability of debt finance is extremely limited. But let’s assume
that the first step in the recovery process is that banks are willing to lend very
conservatively (LTV of 50%) at a reasonably high rate (500bp over Libor). The
borrower can enter into a 5 year swap at around 3.3% (very similar for both
Sterling and Euro, and valid at the time of writing), implying that the funding for
the top 50% of the capital structure will cost 8.3%. Say equity is available, likely
from institutional investors at this stage with a return hurdle of, say, 15%. The
equity return can come from one of two sources: the income return and capital
growth.
So, what is a sensible expectation of capital growth over the investment horizon
of such an investor? Over the life of the IPD UK monthly index, capital
appreciation has averaged 2.7%. That implies such an investor may be
comfortable with a yield of about 9%. However, the 21 year history of that index
has included some high inflation periods, with average annual RPI inflation of
3.5% over the equivalent period. Furthermore, any investor is unlikely to be
willing to call the bottom of the market, so will have to price in some expectation
of further capital value falls in the short-term before longer term recovery. Taking
both into account, the 1.7% capital growth requirement implied by a 10% yield
feels more realistic. So, I can see the leveraged bid returning at around a 10%
yield – a bit lower for very good quality property."

Having spoken to a number of bankers about vals recently, the guide seems to be roughly 16 times the rental income.

 

[Martin77]

Having spoken to a number of bankers about vals recently, the guide seems to be roughly 16 times the rental income.

Would you mind clarifying the last sentence?

Do you mean that these bankers currently think that the correct market valuation should be roughly 16 times rental income or that it is currently roughly 16 times rental income?

thanks.

 

[Martin77]

Have you done any research on the (slum) landlord thing ?

I did some research a number of years ago, and also scanned the market again last year. There was one scheme run by a UK council that was pretty interesting, but my local tax laws were different then and that killed it. It would have made good money which would promptly have been taken by the governments in tax. My conclusion last year was that even prices of repossessions selling at auction were pretty nuts and needed to come down a lot. I do not pretend that my knowledge of the local markets is in any way up to date, so I'm just dipping my toe in the water because prices are dropping. I was thinking of a UK city, and making use of local council support if possible. Yuppy apartments look dead due to massive oversupply, and yet anecdotal evidence and a quick search of council sites suggests that there seems to be a shortage of "acceptable" quality family housing available for rent. My meagre search efforts have failed to turn up anything remotely approaching a high enough yield. I'd be purely in this for the money, so if nothing turns up then so be it, and I'll stick to other investments.

The "magical 7% yield" doesn't seem to be anywhere near in sight yet, never mind 8-10%, which is what I want (and what I can achieve putting my money to work elsewhere). Which is why I asked if anyone else had found any opportunities.

 

[Bronte]

I did some research a number of years ago, and also scanned the market again last year. There was one scheme run by a UK council that was pretty interesting, but my local tax laws were different then and that killed it. It would have made good money which would promptly have been taken by the governments in tax. My conclusion last year was that even prices of repossessions selling at auction were pretty nuts and needed to come down a lot. I do not pretend that my knowledge of the local markets is in any way up to date, so I'm just dipping my toe in the water because prices are dropping. I was thinking of a UK city, and making use of local council support if possible. Yuppy apartments look dead due to massive oversupply, and yet anecdotal evidence and a quick search of council sites suggests that there seems to be a shortage of "acceptable" quality family housing available for rent. My meagre search efforts have failed to turn up anything remotely approaching a high enough yield. I'd be purely in this for the money, so if nothing turns up then so be it, and I'll stick to other investments.

.

Have you been a landlord before, in the UK what happens if the tenant's refuse to pay you or thrash the place? It makes sense if the UK council will continue to pay the rent and to repay you for repairs. In relation to the other poster re Moyross/Limerick or comparable places in other Irish cities, that's an exceedingly tough market to be dealing with. The yield would be good but would it be worth it.

 

[VOR]

Would you mind clarifying the last sentence?

Do you mean that these bankers currently think that the correct market valuation should be roughly 16 times rental income or that it is currently roughly 16 times rental income?

thanks.

They now value properties based on 16 times the income. That's what the bankers I spoke to consider the current market value to be. So that's 6.25% yield which is enough to cover interest and therefore "wash its own face" for the bank.
In the good ol days of 04 and 05 it was 20-22 times the rent. Some went as high as 25. That's just for their own internal calculations though. Its a simple way to work out the value. Also a good rule of thumb.

 

[Martin77]

Have you been a landlord before, in the UK what happens if the tenant's refuse to pay you or thrash the place? It makes sense if the UK council will continue to pay the rent and to repay you for repairs.

Exactly. I do have experience letting out a flat so I know how bad tenants and managing agents can be. In the schemes I was looking at, the council guaranteed the deposit via a bond, collected the rent from the tenants and guaranteed it to the landlord, and also covered any intentional damage to the property caused by their tenants. There were also grants towards paying for the initial renovation costs. I was also looking at the UK simply because I know the culture and legal system pretty well. I can get local bodies on the ground to help out if need be, and it is cheap and not far to travel if I need to visit personally (UK is overseas for me.) But if the yield isn't there in the first place then there's little point in having the other guarantees or ingredients sorted.

If I read that the banks are looking at 16 times rental: to me that says that they are reasonably comfortable that their loan is going to be pretty well covered by the owner, or that if they are forced to repossess that they will get their money back via that route. That does not say to me that the landlord is going to make any sort of return or profit at 16 times rental.

I personally wouldn't characterise taking on a place at 20-22 times rental as being "the good old days." That to me is speculation and not investment. Each unto their own though.

 

[MichaelDes]

I feel government bonds are the next bubble (assuming we don't head into serious deflation) I can't get excitied about 2-3% yield over 10 years.

Prices are deflating at their highest level in sixty years according to media sources today.

Corporate bonds are incredibly attractive. I have a pretty large proportion of my investments in corporate bonds now. Achievable yields are anything from 7 to 11% after costs and tax if they don't default and still manage to pay the coupon. If someone had asked me a year ago: do you want to own Euro debt in a major French bank paying interest at 10% pa? I'd have said "you must be joking? Who is offering that?" Well there are plenty to buy now.

Can you illustrate and give examples of companies offering such rates of 7% to 11% on coupon etc.

 

[Martin77]

Can you illustrate and give examples of companies offering such rates of 7% to 11% on coupon etc.

Warning: I do not recommend any of the following products. Do your own due diligence! I may be very wrong. You could lose your entire investment. Read the prospectus yourself. Know what you are buying. Get proper professional advice. Balance your portfolio.

One example:

CREDIT AGRIC3 6%PL ISIN: NL0000113868

This is a Perpetual Bond = preferred stock in Credit Agricole Funding Trust. Coupon is 6% of nominal value annually split over 4 equal quarterly dividends. What is the price of this bond today? 62.25% or 622.50 euros per bond of 1000 euros nominal value = current yield of 9.6% ignoring any capital appreciation or depreciation. Purchasing fees are typically around 10 euros.

The down side. This is a subordinated preference share. What does that mean? You are lower in the queue than the basic debt holders if things go wrong. CA could go bust and you could/would probably get nothing at all. Nada. Zip. Potentially toilet paper. If CA stop paying dividends on ordinary shares they also stop paying dividends on these preference shares. You have no voting rights. It is up to the issuer whether they ever redeem these bonds. There is very low market liquidity (if you want to sell you may not be able to as there are not always buyers) If there is ever super high inflation these will also be almost worthless or impossible to sell because you'd be better off having index linked bonds or even cash.

The up side: potentially regular cash payment at a phenominally high yield. Potentially will return to near 100% of value if the credit markets ever ease to near normal interest rates of around 4% and CA survives and pays out a dividend at some point in the future. That's a lot of up side: around 100/62.25 = 60% potential capital appreciation on top of the dividend yield if you can ever sell them at their issuance price.

Who typically has owned such issuance? Pension funds and (retired) people wanting a steady dividend over the long term. Why are they being sold so cheaply now? My personal view = there were an awful lot of forced sellers in the pension and hedge fund industry who just had to sell anything they could to get liquidity (and to help cover the margin calls on losses due to mark to market), plus a lot of scared investors who just dumped everything in case the World ended. There are some funds buying this stuff. There are others who think that you have to be very brave or very foolish. I take the view it is worth the risk. Others say I'm daft. At least preference shares aren't diluted by capital raises and rights issues. I like the long term buy and hold potential (10 years) partially assuming that the French government would come to the rescue in terms of injecting any money also via preference shares. That's basically what a number of other bail out packages have done.

You can get similar "tier 1 capital" preference shares from ING, KBC etc. etc. with varying effective coupons. INGGROEP 8% PL is trading at 83 (>10% yield) KBCBANK 8% PL is trading at 75 = 10.6% yield. If they don't go bust of course. And some people obviously think they will go bust at those levels. In my view they are pretty solid institutions or in the "too big to fail" category. If you think the financial World is going to end, or you cannot afford to lose your entire investment, you do not want to go anywhere near this stuff.

Another example that sits higher up the debt tree and is potentially less risky. This is a straight bond = senior debt. Not perpetual and not subordinated AFAIK.

ING 5.5% 2012. NL0000119592. Coupon rate 5.5%

I bought several thousand euros worth of these at 90% last month. So that is 5.5%/.9 = 6.1% dividend yield plus the appreciation from 90% to 100% in just over 3 years so that gives an IRR of somewhere around 9% if I am not mistaken. These have to go to 100% when/if they are ever paid off on 04/01/2012. Or else you again could of course end up with zero if they default. Currently they are trading at 98% which tells me someone has some more confidence in these sort of products than last month.

The senior debt of Irish banks could potentially enter this category if the Irish government ever releases details of the bail out. But of course once the details are known, prices will probably move fast (if they haven't already done so). Just check out ABN Amro bonds. They went from near junk to being a proxy for government debt. At the same time, the shareholders in ABN Amro/Fortis got wiped out. In some ways it's a game of chicken with the governments.

Another example that may be less risky:
ML FX/IILN 7%11. XS0366355922.

This is an inflation linked note. 7% coupon on year 1. (5%+inflation-2.5%) in years 2&3. It is not linked to dividend payments on ordinary shares.

If you think that the inflation is going to explode, this sort of certificate product may be of interest. Currently trading at around 90% possibly because people are scared that Merrill Lynch will not survive to pay you your money back. Even with 0% inflation that's an IRR of ~9.5% pa for 3 years. Or 100% loss if they fail.

But that's exactly the risk and the opportunity thrown up by a credit crisis.....

If you think the Fed is not going to win the fight against deflation then you'd probably be advised to buy the longest term Yen denominated Japanese Government bonds that you can get your hands on. Or lots of tins of beans and some candles. That would not be pretty.

On Topic: Would anyone care to comment on Ringledman's assertion that you need at least a bare minimum 7% gross yield on an investment in overseas property ( I'd aim for solid 8-10%. VOR's sources suggest the banks use a minimum of 6.25% as a basis for qualifying lending whilst the RBS report advises aiming for 10% and "a bit lower for very good quality property")?

 

[VOR]

I did indeed say that the banks are using 6.25% based on my discussions. That is their calculation for lending. The bank doesn't really care whether you make money or not just as long as they have sufficient interest cover, hence the 6.25% They are none too worried about the repairs and other charges that will accrue.

The RBS report I posted above says 10% and "a bit lower for very good quality property". That is the advice to the investor so is a more suitable yield for this forum.

On that basis, I would agree that 8% is the minimum.

Just out of curiosity I rang an EA I know this morning and asked her what yield she uses. Generally 5% so 20 times the rental income. Obviously there still is a disconnect between the EA/valuers, banks and investors. The valuers are still applying a premium for speculation which is wrong.

 

[Blinkers]

Hi Martin,

In response to your query about property with 7% yield in the UK and becoming a slumlandlord.. I have been involved in property in Liverpool for the past 6/7 years. I have always bought at the bottom end of the market but while it has sometimes taken quite alot of attention to keep my properties let it has defo paid off. By buying 4 properties for £50K each instead of one for £200k I alway have an income steam even if 1 or 2 of the properties are vacant. Also, I can choose to sell just one if I need to cash in. I'm just saying that you have to work a bit harder but it takes the pressure off in times like this. Also, I am currently in the process of buying property with 16% gross yield.. OK its not in the best of areas but its not that bad either and it will alway be fairly easy to sell on as it is perfect investment property with good a yield. The are out there but the only problem is I can't afford to buy them all...