36% Gross Rental Yield – Is that even possible?

36% Gross Rental Yield – Is that even possible?

17:08 PM, 4th June 2015, About 7 years ago 23

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When I saw a property listed in Liverpool today showing a 36% gross yield I thought it must be a mistake, so I called the agent. 36 Percent Gross Rental Yield

It’s not a mistake!

I was told the property is let to a blue chip company on a rolling 12 month company let agreement with a verbal commitment to renew for two further years.

The property is fully furnished and part of the deal is that all bills are included and the property is cleaned weekly. Apparently this nets down from gross rent of £1,600 pcm to a net rent of £1,000 pcm. Nevertheless, even if you crunch the numbers down at that level the yield is still a whopping 22.66% based on a purchase price of £52,950.

A few years ago, when I was still buying, I’d have been very tempted to go and have a look for myself, even though Liverpool is about as far from me as I could get in England.

Whoever buys this property, or even if you just go and have a look, please come back here and share your thoughts.

Just in case you didn’t know, our portal can be found on our home page. Just click the Property118.com logo at the top left of your screen to get there.


Simon Topple

19:01 PM, 4th June 2015, About 7 years ago

Plenty of high yielding properties in Liverpool. The problem is, every man and his dog are up here chasing after the same properties.

Fundamentals are important - if this blue chip wasn't renting, who would the target market be? There is a nearby college (Hugh Baird) but you won't find students taking it. There is lots of dock work going on, but do they want to be living in a HMO on a back street terrace in Bootle? A HMO that looks like it needs a full refub?

One property has already done the rounds less than a 1/4 mile from here (I have taken calls from a few investors looking to buy it) - this has been sourced and looks like it is being punted back out at auction hoping to sell on to someone who wants a HMO investment property.

Liverpool does have scope for making good returns (my yields range from 8% up to 26%), but the fundamentals have to be there - who will be living there, who will your target market be, why "this" house. Don't think that house (or the one I mentioned before) ticks that box.

Mark Alexander - Founder of Property118 View Profile

19:45 PM, 4th June 2015, About 7 years ago

Reply to the comment left by "Simon Topple" at "04/06/2015 - 19:01":

The interesting thing about deals like this though Simon is that positive cashflow amortises a 25% deposit by the time the corporate let tenants do decide to move on.
From that point forwards you're into infinite return on capital invested.

Even if it only rents as a family home for £500 a month from that point onwards that's still more than a 10% yield on cost, plus of course the potential of capital uplift.

I suspect this one will sell fast but I would like to see a lot more deals like this on the portal. Remember, if you have any, it's free to advertise them and only £11.80 per week if you want to upgrade to a Premium Listing and showcase the deal on our home page like this person did.

Mark Alexander - Founder of Property118 View Profile

19:46 PM, 4th June 2015, About 7 years ago

PS - looking at the pics I can't see why you think it needs a refurb. In fact, it looks pretty tidy to me.

Mark Alexander - Founder of Property118 View Profile

20:16 PM, 4th June 2015, About 7 years ago

I have now done the number crunching using the Property118 landlords calculator, see >>> https://www.property118.com/wp-content/uploads/2015/06/Bootle.pdf

Simon Topple

20:38 PM, 4th June 2015, About 7 years ago

I'll bear that in mind Mark when its time to sell 🙂

Ref the refurb, its probably because it looks like a perfectly decent family home, with a through lounge and downstairs bathroom - the bathroom is clearly set up for a disabled/inform or elderly access (grab rails), indicating it is probably a family house.

It doesn't look like it has been set up a 4 or 5 bed HMO of the standard to get £1600 a month gross.

Can't see how this could rent at £1600 on a corporate basis - I'll take it at face value but the rightmove advert here - http://www.rightmove.co.uk/property-for-sale/property-28184673.html# - makes no mention of the corporate let or any rental coming in, and the pictures appear to be common for the lounge and external, nor does rightmove plus throw up any lettings of that house within the last 4 years. Not that that proves anything.

I see plenty of deals in Liverpool and with new investors flocking up here they are being offered properties at prices I wouldn't consider. If you take a look at rightmove/rightmove plus for the L20 postcode you can see lots of very high quality shared houses that would let at that kind of money, but for larger - proper 5 beds.

Having said that, if you are looking for a nice family home to rent out you won't go too far wrong at the price it is being offered at.

Simon Topple

20:43 PM, 4th June 2015, About 7 years ago

Interesting figures Mark - out of interest what is the breakdown of £663 per month for advertising, letting, management, cleaning, insurance?

I cost in my HMO purchases (and R2R deals) with £40-£50 per month per tenant for gas, electricity and water and Internet (£50 is on the maximum side), and management rates at a commercial rate (even though my own agency manages for me) and around £20 for insurance based on my block policy - £663 seems staggeringly high for this.

Mark Alexander - Founder of Property118 View Profile

20:52 PM, 4th June 2015, About 7 years ago

Reply to the comment left by "Simon Topple" at "04/06/2015 - 20:43":

4% management fee with Letting Supermarket (based on company let agreement, not for standard HMO's)

£100 per annum insurance

£600 pcm for utilities & cleaning, that's what I was told. Don't know how often corporate tenants wants it cleaned though or to what extent (e.g. does it include laundry of linens and towels?) if so that might be why it is high.

£720 per annum for maintenance, I typically budget £60 pcm for smaller properties like this.

I suspect this property is available on the open market with vacant possession but the agent who's listed it with us has the corporate tenant lined up. I haven't dug too deep because I'm not a serious buyer but I suspect the agent is looking to charge a buyers premium of sorts to sort out any modifications, furnishing etc. Very enterprising though if that's what he is doing because, as you say, there are hundreds of properties available like this but very few tenants floating around who want this type of arrangement, and especially at that price!

Simon Topple

21:01 PM, 4th June 2015, About 7 years ago

Reply to the comment left by "Mark Alexander" at "04/06/2015 - 20:52":

The quality is key - we've had houses in the same area (and of a boutique HMO level) that we struggled to let to students (it was 50m from a train line into Liverpool), and we had workers lined up without too much trouble. But that was a very high end property.

The general feeling among investors I know, which I share, is Liverpool is experiencing a property boom driven by property courses and forums. It is just like 2003/4/5 again after Liverpool was announced Capital of Culture, and the kind of deals - and sourcing fees - is just like it was when Singing Pig was one of the main forums and you couldn't even get standing rooms at the auctions at the Adelphi hotel.

Mark Alexander - Founder of Property118 View Profile

21:14 PM, 4th June 2015, About 7 years ago

Reply to the comment left by "Simon Topple" at "04/06/2015 - 21:01":

Wow, how long as it been like that?

What are your predictions for Liverpool property prices over the next 3, 5, 10 years?

I remember the 2003 boom well. Those who purchased in 2002 to 2004 and sold in 2007 did very well. Those who purchased in 2008 are still praying for a recovery?

I'd be interested in where you think Liverpool is now on the cycle?

Simon Topple

21:29 PM, 4th June 2015, About 7 years ago

Reply to the comment left by "Mark Alexander" at "04/06/2015 - 21:14":

I'd say it has been like that for about a year now, and intensifying weekly. I am constantly meeting new landlords looking to buy - one new entry landlord has 5 new student HMOs under his belt (2 finished and let, the rest have just completed). It took me several years to get to that stage!

When will it crash? Bit of a million dollar question 🙂

I'd say we're riding the crest at the moment. Liverpool is a big city and each area performs differently, as different factors influence investment and buying. I can't predict when it will come crashing down (it will), but the biggest losers are those that are buying up smaller houses, ripping out and making them into oversized HMOs and refinancing on HMO vals based on yield. I think the income will probably hold up, providing they continue to let, but all it takes is for lenders to get twitchy and do a LTV reassessment, which will result in a distressed seller. Goldfish seem to have better memories than investors - the banks have a habit of pulling the rug out, and it happens over and over again!

The other bigger losers are those buying HMO properties in areas that really have no long term demand. Building booms come and go, I think buying a HMO for a short term boom is very short sighted . These may end up being very low end LHA type properties, but the buyers are going to find themselves in a pickle at some point especially if they believe they can refinance now for some easy cash.

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