We Should Be Using Net Rental Yields

We Should Be Using Net Rental Yields

8:36 AM, 10th August 2017, About 7 years ago 31

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I have just responded to a Facebook post by axe the tenant tax, the post was about landlords losing confidence with rental profits. The article ended with the fact that rental yields are holding up at 6% I have done some calculations and would like those good at the maths to make comment or provide alternative figures. I believe that net rental profits are down to average of 2%

Too much talk about rental yields that are gross figures ie 6%, due to the recent government taxes we should now quote net yield for greater accurately. Paying tax has now become a cost of doing business due to the loss of interest as an expense.

I did a calculation based on an average property price of £190,000, average rent of £850 per month, average loan of 60%, average interest rate of 4.5%, average running costs which included full management or an employed team for the larger landlord like myself of which costs 30% of the rent if you do your figures right, I allocated 5% of the rent for capital improvements or to go into a sinking fund for long term improvements.

The figures I came out with were that 25% of the rent goes to the tax man, 25% pays the interest on loans, 5% to the sinking fund, 30% to running costs (which includes repairs, administration costs, management for all new rules and regulations), this left 15% after tax profit for the landlord.

Now at £850 per month that’s £10,200 per year and 15% of that = £1,530 after tax profit per year.

Now let’s forget the capital appreciation because no one includes that in working out the yields, capital employed and put into the purchase of the property is 40% of £190,000 = £76,000 and the return on investment for £1,530 after tax rent on our cash investment of £76,000 = 2.01%

So big difference from the quoted figures of 6%

Any one any comments.


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Sam Caine

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13:51 PM, 11th August 2017, About 7 years ago

Hi Mark,

This is more a topic for a private email, wouldn't you agree? Do you have my email address?

Sam

Mark Alexander - Founder of Property118

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14:22 PM, 11th August 2017, About 7 years ago

Reply to the comment left by Sam Caine at 11/08/2017 - 13:51Hi Sam

Yes absolutely, it's mark@property118.com

Big Blue

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19:05 PM, 11th August 2017, About 7 years ago

Phew! For a second there Sam I thought you meant treasury with a capital 'T'! Was just loading the machine gun... 😊

Mark Alexander - Founder of Property118

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19:13 PM, 11th August 2017, About 7 years ago

Reply to the comment left by James Fraser at 11/08/2017 - 19:05LOL

Hi James

Always good to have a backup my friend but I've now had a chat with Sam offline and there is no capital T.

We can save that ammo for another day!

Mark Alexander - Founder of Property118

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20:02 PM, 11th August 2017, About 7 years ago

Reply to the comment left by Appalled Landlord at 10/08/2017 - 13:43Very comprehensive response and impressive number crunching, even for a retired accountant!

Old Mrs Landlord

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22:31 PM, 11th August 2017, About 7 years ago

Reply to the comment left by Mark Alexander at <a href="11/08/2017" rel="nofollow">https://www.property118.com/using-net-rental-yields/comment-page-3/#comment-93503">11/08/2017 - 14:22Mark, why would you think Sam's email address would be the same as yours? His question was "Do you have MY email address?"

Mark Alexander - Founder of Property118

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2:34 AM, 12th August 2017, About 7 years ago

Reply to the comment left by Old Mrs Landlord at 11/08/2017 - 22:31I misread, thought she was asking for mine

Old Mrs Landlord

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7:50 AM, 12th August 2017, About 7 years ago

Reply to the comment left by Mark Alexander at <a href="<a href="12/08/2017&quot" rel="nofollow">https://www.property118.com/using-net-rental-yields/comment-page-3/#comment-93514">12/08/2017&quot; rel="nofollow"><a href="https://www.property118.com/using-net-rental-yields/comment-page-3/#comment-93514">12/08/2017https://www.property118.com/using-net-rental-yields/comment-page-3/#comment-93514">12/08/2017</a&gt; - 02:34Well, yes, of course I realised that - easily done. I have noticed previously that you occasionally read like my husband listens! I'm used to getting answers to questions that weren't asked, but I thought Sam might have been a little surprised, that's all. By the way, I'm now finding the site much easier to use, even for a non-techy old fogey like me.

Mark Alexander - Founder of Property118

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7:57 AM, 12th August 2017, About 7 years ago

Reply to the comment left by Old Mrs Landlord at 12/08/2017 - 07:50Thank you for the feedback, we are still working on further improvements too

Yvonne Halliday

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20:35 PM, 15th August 2017, About 7 years ago

To add to the dialogue, in Liverpool and other licensed area the cost of the license and unfortunately my properties on which I pay interest only are still after 12 years in negative equity and quite some way from what I paid. Not an ideal investment scenario.

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