What Yield?

[Ric.ror]

Ok - so I have seen a house approx £200k - but I hope to get it for less
I have a 25% deposit and could expect to get approx £650 (conservative) rent pcm
My question is would that be a reasonable return

[Gizmonster]

Let's assume you get it for £200k.
£650 pcm = £7800 per anum (assuming it's occupied all the time and you have no hassle with payments etc).

This gives a yield of (7800/200000) x 100 = 3.9% per anum.

...... factor in all your costs, etc ....... plus possibilities of missed rents ....

In my opinion it's not a good return.

[Buenchico]

If you £200k into a 5-year fixed ISA you could get a rate of 2.3% p.a., tax free.
(Source: https://www.moneysavingexpert.com/savings/best-cash-isa/ )
So that's an income of £4600 per year.

£650 per month in rent will bring you in £7800 gross but, in order to work out your net gain, you'd need to knock off:
(a) the costs of maintaining the property ;
(b) your letting agent's fees (if relevant) ;
(c) the cost of landlord's insurance ;
(d) loss of revenue when the property is unoccupied between tenancies ; and
(e) the tax on your profit.

You can get an idea of what a letting agent might charge here:
https://www.simplybusiness.co.uk/knowledge/articles/2017/01/letting-agent-fees-for-landlords-a-quick-start-guide/

Guidance on paying tax can be found here:
https://www.gov.uk/renting-out-a-property/paying-tax

I'll leave you to do the rest of the sums. I suspect though that you'll find that, at first glance, you can earn slightly more from buying (and then renting out) the house than you can from a safe investment, such as an ISA. However you'll then have the worry of possibly having to pay for unexpected repairs, concerns about whether there might be lengthy periods with no tenant and the uncertainty of not knowing whether your tenants will keep paying the rent on time (plus the potential difficulties in getting them out if they don't).

[gingejbee]

I suggest that if you have to come on here to ask such a question, then this isn't the route for you....

[twix123]

If you've only got a 25% deposit available, you also need to factor in the cost of mortgage repayments / interest in your calculations, together with any other fees to the funds provider.

[Baldric]

Not a deal we would go for and we have 8 rentals between the 4 of us

[Buenchico]

>>> If you've only got a 25% deposit available, you also need to factor in the cost of mortgage repayments / interest in your calculations

I knew I'd forgotten something!

[Gizmonster]

^^^^^^^^
Ditto

I assumed you'd be paying cash - even though you said you had a 25% deposit ...... so I'm guessing now, that the property will be mortgaged .... yet another expense to consider .....

[Buenchico]

Something else to be factored in though is the gain you might make, over a few years, on the value of the property. e.g. if you pay £200k this year you might be able to sell the house for considerably more after a decade or so.

The sums aren't easy, are they?

[Ric.ror]

Thanks for your help
I’ll be back in touch this afternoon with more questions

[Ric.ror]

Here’s another scenario
A house costing £250k with a £100k (possibly a little more) - would that be worthwhile?