New BTL purchases – current returns?

by Readers Question

12:03 PM, 3rd October 2016
About 2 years ago

New BTL purchases – current returns?

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New BTL purchases – current returns?

I have been looking to take on another property for a few months, and am struggling to find something suitable. Previous properties I took on in 2012 and 2015, have made 12-14%+ return per annum (Captial gains excluded).returns

Now I am struggling to find anything that will give me 10% return – and those that do require considerable renovation. I think this is in down to the stamp-duty changes, in part this is because of increase in prices, and whilst slightly better mortgage rates have helped, this still feels like a decent drop.

Have other people found the same?

Many thanks

Richard



Comments

Rob Crawford

12:50 PM, 3rd October 2016
About 2 years ago

Hi Richard, I am surprised, many landlords are reducing their portfolio or leaving the sector altogether. I would have thought that finding a tenantable property with a sitting tenant should be relatively easy. I note you mention capital gains tax and not stamp duty or Clause 24 (where you are no longer able to offset mortgage interest against tax). Unless you are not reliant on lenders it would be worthwhile checking how this will effect your bottom line before expanding further.

Sunny K

7:49 AM, 4th October 2016
About 2 years ago

Interesting Richard. I have had ~10% rental returns (RR) on pre-2013 purchases in greater London. My most recent July 2016 purchase gives ~4% RR. If I calculate RR of my previous properties on their current Market value, the rental return is 4%. Hence 4% seems to be the new norm.Also I am struggling to remortgage >60% LTV on current lending criteria let alone the new ones.This is more to do with greater rise in market value than rents. Maybe I should be happy about great capital increase of my portfolio rather than moan that the rents have not increased at same rate. The market seems to a speculators one now in vanilla properties i.e. buy for capital growth rather than rental return.

Richard U

20:02 PM, 4th October 2016
About 2 years ago

Reply to the comment left by "Rob Crawford" at "03/10/2016 - 12:50":

Hi Rob, only disregarded the budget changes for two reasons: 1- brevity 2- I think by the time the income tax changes come into play I would have increased rents enough to offset them

Richard U

20:06 PM, 4th October 2016
About 2 years ago

Reply to the comment left by "Sunny K" at "04/10/2016 - 07:49":

Hi Sunny, bearing in mind you can easily get 4% dividends from shares currently you are a braver man than me! Don't fancy all the work for a 'theoretical' capital gain or the risk of interest rate rises. It's an income game for me, or i'd look at renovation. Sounds like you are saying that you've had no impact on margins though which is great.

Andrew K

9:04 AM, 8th October 2016
About 2 years ago

When you say 12-14% returns, is that Return on Equity, Rental Yield, or...?

Charles Pilton

20:49 PM, 9th October 2016
About 2 years ago

I think the interesting question is here how Richard was making 12-14% per annum excluding capital gains.

That is a fantastic return.

Rental yields in this area are now around 4-5%.

Richard U

21:44 PM, 9th October 2016
About 2 years ago

Reply to the comment left by "Andrew K" at "08/10/2016 - 09:04":

Return on investment. I.e cost of deposit, fees, stamp duty, tarting-up etc

Richard U

22:01 PM, 9th October 2016
About 2 years ago

Reply to the comment left by "Charles Pilton" at "09/10/2016 - 20:49":

Hi Charles, not rental yield - real returns. The annual profit as a % of investment. I have never used 'yield' as I am geared-up and the property price seems irrelevant in my situation as long as the mortgage is serviced.

Sunny K

22:14 PM, 9th October 2016
About 2 years ago

I think with house prices rising faster than rents, tax changes and new BTL lending criteria, it would be challenging to achieve the high returns. I understand you maybe able to buy below market value and renovate to max returns. Even so, you would need to achieve 50% below market value post renovation to achieve 10% rental returns instead of 5%. This is an exception rather than norm.

Richard U

18:48 PM, 11th October 2016
About 2 years ago

I think we are heading off topic. I am interested to know if people in the current environment have seen their returns drop for recent purchases. Sunny you say no. I say yes. Any others?


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