Calculating The Rental Yield To Find The Best Investment

As a landlord, or more specifically, perhaps a new/upcoming landlord, have you ever been torn between multiple properties? A landlord’s main concern should be buying the property which will offers the best ROI (Return On Investment). Let’s face it, it’s all about the money!

Example scenario
John wants to be a landlord, so he’s on the hunt to buy a property. John has seen 2 properties he likes. Property 1 costs 150,000 with a potential rental return of £600pcm. Property 2 costs £180,000 with a potential rental return of £775pcm. Which is the better buy?

The formula to work this out is quite simple. It basically boils down to “rental yield”

What is rental yield?

Rental yield is the amount of money a landlord receives in rent over one year, shown as a percentage of the amount of money invested in the property. There are different ways of calculating rental yield, but for the sake ease, I’m going to use one of the most common formulas in my examples.

The higher the yield, the better.

Calculating rental yield

The formula:
mrr = monthly rental return
i = investment

Yield = mrr*12/i*100

Rental yield for Property 1

Monthly rental return = £600
Investment = £150,000

£600 * 12 = £7,200
£7,200 / £150,000 = 0.048
0.048 * 100 = 4.8 % yield

Rental yield for Property 2

Monthly rental return = £775
Investment = £180,000

£775 * 12 = £9,300
£9,300 / £180,000 = 0.0516
0.0516 * 100 = 5.16 % yield


Although property 1 costs less to buy, property 2 offers the better ROI.

What is a good return yield percentage?

Will, it’s actually a subjective issue. I personally think any property which has a return yield of 7%+ is extremely good. I certainly wouldn’t put my nose up at a property which generates that kind of yield.

To make life easier (because that’s what I’m all about), you can use the yield calculator below…

Rental Yield Calculator
Rent per month (e.g £750)
House price (e.g £150000)
Rental Yield
Top 50 Buy-to-Let Hotspots by Rental Yield in England & Wales

HSBC has released a report showing the average rental yields for the top Buy-to-Let hotspots of England and Wales based on data from the Office of National Statistics (ONS) and Land Registry.

While these are only averages, and don’t account for ‘special cases’, which include high-yielding gems, it does give a good indication where the highest yielding areas are.

The following data was published on the 30th May, 2014.

Location Percentage of Rental Housing Stock Average House Price Average Rent (Monthly) Average Rent (Annual) Rental Yield (gross)
Southampton 23.42% £138,311 £901 £10,812 7.82%
Blackpool 24.16% £75,943 £494 £5,928 7.81%
Kingston upon Hull 19.02% £69,519 £450 £5,400 7.77%
Manchester 26.85% £102,631 £650 £7,800 7.60%
Nottingham 21.64% £83,313 £524 £6,288 7.55%
Coventry 19.02% £104,970 £624 £7,488 7.13%
Slough 23.07% £171,581 £975 £11,700 6.82%
Oxford 26.11% £244,893 £1,375 £16,500 6.74%
Liverpool 21.75% £91,012 £498 £5,976 6.57%
Portsmouth 22.28% £141,971 £775 £9,300 6.55%
Cardiff 20.32% £140,882 £750 9000 6.39%
Cambridge 23.91% £179,699 £949 £11,388 6.34%
Southwark 22.22% £401,405 £2,058 £24,696 6.15%
Luton 21.27% £127,473 £650 £7,800 6.12%
Newham 32.62% £229,141 £1,126 £13,512 5.90%
Leicester 21.28% £112,226 £550 £6,600 5.88%
Bournemouth 28.21% £170,493 £825 £9,900 5.81%
Enfield 21.18% £261,163 £1,200 £14,400 5.51%
Brighton and Hove 28.04% £229,622 £1,049 £12,588 5.48%
Brent 28.82% £337,723 £1,517 £18,204 5.39%
Forest Heath 21.80% £179,699 £795 £9,540 5.31%
Torbay 21.43% £139,168 £598 £7,176 5.16%
Southend-on-Sea 20.72% £152,171 £650 £7,800 5.13%
Watford 18.89% £240,239 £997 £11,964 4.98%
Bristol, City of 22.11% £169,425 £695 £8,340 4.92%
Kingston upon Thames 21.04% £333,122 £1,363 £16,356 4.91%
Reading 24.68% £196,309 £795 £9,540 4.86%
Hounslow 22.23% £285,927 £1,148 £13776 4.82%
Wandsworth 30.02% £428,987 £1,694 £20,328 4.74%
Lewisham 22.97% £283,031 £1,101 £13,212 4.67%
Shepway 20.17% £181,399 £695 £8,340 4.60%
Tower Hamlets 30.84% £364,296 £1,387 £16,644 4.57%
Eastbourne 21.65% £177,408 £675 £8,100 4.57%
Harrow 20.37% £306,381 £1,148 £13,776 4.50%
Croydon 19.83% £254,591 £949 £11,388 4.47%
Exeter 19.56% £187,680 £693 £8,316 4.43%
Isles of Scilly 20.63% £180,227 £654 £7848 4.35%
Lincoln 19.36% £119,076 £429 £5,148 4.32%
Redbridge 21.63% £292,459 £1,049 £12,588 4.30%
Cheltenham 20.15% £170,573 £598 £7,176 4.21%
Ipswich 18.75% £153,163 £524 £6,288 4.11%
Richmond upon Thames 20.55% £485,496 £1,647 £19,764 4.07%
Westminster 37.56% £767,112 £2,578 £30,936 4.03%
Norwich 20.10% £179,699 £598 £7,176 3.99%
Camden 30.46% £646,043 £2,145 £25,740 3.98%
Hastings 27.19% £177,408 £550 £6,600 3.72%
Haringey 30.33% £372,278 £1,148 £13,776 3.70%
Thanet 21.96% £181,399 £524 £6,288 3.47%
Hammersmith and Fulham 30.05% £593,787 £1,690 £20,280 3.42%
Kensington and Chelsea 33.97% £1,090,943 £3,033 £36,396 3.34%

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53 Comments- join the conversation...

Showing 3 - 53 comments (out of 53)
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jez 5th November, 2010 @ 00:21

Superb yeild of 13% on repo flat i paid 40k for!

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Jonathan Wood 17th November, 2010 @ 23:52

Interesting approach to evaluating rental properties. Normally, I use a tool like , which focuses on the monthly cash flow. While your calculator doesn't delve into some of the finer calculations, it is certainly a quick and easy way to compare rental properties.


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Mike 14th January, 2011 @ 12:34

Of course, in computing a true yield figure, you would ideally cater for (in addition to the cost of the house)

1) costs of finance setup - booking fee, arrangement fee, valuation, brokers fees
2) legal fees, searches
3) costs of any refurbishment (including your own time)

From the monthly rental return, you should remove

1) costs of finance - repayments/interest
2) costs of compliance - safety checks, repairs, insurances
3) allowance for void periods between lettings.
4) a realistic percentage if your expected mrr is a figure supplied by your property's vendor!
5) Service costs if applicable
6) Management fees/finders fees if using an agency. Advertising costs if not.
7) Return on your cash if you'd invested it in an isa/other opportunity instead - IE the cost of the money you invested.

Don't these costs mount up quickly? I probably forgot a few too!

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Peter whiteman 19th November, 2011 @ 14:57

This is a quick guide to yield which is helpful. But do remember as Mike is making in his post, you need to consider both gross and net yield, could you provide both the gross calculator and a net yield calculator, giving you the ability to put any cost for maintaining the property, landlord insurance etc, which when subtracted give you your net yield. For me this is the real yield to work against.

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chris J 29th June, 2012 @ 17:18

Not only does Mike address very important points here are a few others:


The absolute net rent is more appropriate number to use to get to your net yield but where the property is located can also affect the yield. In other words just because one property generates a higher yield it does necessarily translate into a wiser investment. I have seen properties in certain locations hardly appreciate in a 10 year period where others in prime location triple in price during the said period. You might also need to compare locations that have future strategic value not yet reflected in the price.

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Philip 25th November, 2012 @ 10:28

If someone buys let's say a 2 bedroom apartment for £150k as cash purchase and rents it for 9,600 PA, the gross yield is 6.4%. If the rent goes up to £12,000 PA in 5 years time, do you calculate the yield on the initial investment i.e £150k, or its market value?


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Griffo 14th December, 2012 @ 09:21


But why don't you work out the potential rental income based solely on the investment value first in order to calculate the profitability of property. Yield does not take into account the market competitiveness. You may have a property vacant for months if you expect a high yields and before you know it your property breaks even or even worse goes negative! Work out your properties minimum rental return first including a minimal safe guard profit after all your fees and expenses then asses if the market can afford this minimal rent/lease. If the market cannot afford it then you already know that market is not for you.

Think of it like a business. A good business makes profit.

Good luck!

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Pete 2nd February, 2014 @ 23:36

Do you know of any tools that give the yields in different areas of the UK? I could only find one and it's not free (

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david G 23rd March, 2014 @ 17:05

should it not be the amount invested not house price? The property may be valued at £100k but you have only invested £20K ( 80% LTV) so your return is calculated on rent minus cost(letting agent fee, mortgage, etc.) against a £20k investment.

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graham 12th June, 2014 @ 10:26

I bought my one bedroom flat in 1998 for £43,000 it is now worth £ 145,000 if i calculate the rental yield on £145000 it is 5-57% but on £45000 the percentage is much greater ,just to let you know i often visit your sight for info as i am a virgin landlord have employed an agent for the first year will see how things go ,thanks for all the info and the sense of humor keep it up .well you know what i mean .

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Susie Gillespie 19th July, 2014 @ 23:03

Really like the site - info very useful...
thank you.

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Audrey Stevens 29th August, 2014 @ 15:49

I have a commercial property for sale that i have already leased to a very well known company, has a 10 yr renewable lease option, and full insuring & maintenance contract, but do not know how to find a genuine investor. Also own a large adjoining property, by separate negotiation. Would want a cash buyer for both though, so how do i find one ??

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Paul C 19th October, 2014 @ 16:00

Hi all,

Great web site. I'm a new landlord who has just let my first house and in the process of buying my second.

I've purchased both on a LTV 75%, and have been working out my yield on my investment of 25% not the full 100%.

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Guy K 22nd October, 2014 @ 10:21

In answer to several comments, the main issue in property finance is a comparison with alternative use of the funds presently invested in the property. So, what was paid to acquire it is irrelevant: only the present realisable value, net of all selling expenses, is relevant. Why? Because by selling up for, say £100K, we could invest the sum in 30-year Treasury stock -- a risk-free, long-term asset for sterling investors -- at 3% per year (gross) in mid-October 2014. (Treasury yields change continuously!) In all finance, comparisons with alternative uses of any funds are vital! Shrewd property investors will set a standard for the difference between Treasury yields and the yield on property: a standard premium to compensate for the greater potential risks in property investment over investing in risk-free Treasuries to maturity. As for finance costs, say mortgage interest, they are irrelevant. The issue is the yield on the respective assets not how they are financed: this only determines how the yield is shared! Two really important issues in property finance are maintenance expense, and voids. Property maintenance is a serious expense: Treasuries need no maintenance. They are also not subject to voids: they can be sold with a phone call and the cash realised is available within a few hours. As for voids, prudent property investors assume only ten months rental income per year to allow for vacant periods -- vacancies due to changes of tenant and to refurbishment -- and for bad debts. As a very rough guide, I would aim for a property premium of 500 basis points (5%) above the 30-year Treasury yield, or a yield before income tax of about 8% at present, but I fear few property investors achieve it! BTW, most TV property programs seriously mislead viewers over the elementary realities of property finance!

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Audrey Stevens 19th November, 2014 @ 10:51

How do i find a good investor buyer ? as i have 2 adjoining properties for sale ( both freehold ) one is now leased 10 yr renewable leases to a well known solid tenant @£35k PA. And the other is a 4 Double Bed residential.Could have 6 letting rooms. Could achieve in excess of £50k PA income rentals between them. Portsmouth.

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John 17th March, 2015 @ 23:21

ive just worked out my rental yield, £51,000 I paid for house, £675 monthly rent give a yeld of 15.88 %, and I haven't even put the rent up for five years.....does this sound right....? sounds pretty good to me....!

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Guy Knapton 18th March, 2015 @ 10:46

Sounds OK, John. But: what is your best estimate of how much you could sell the property for, today? To allow for voids, bad debts and periods of refurbishment, you should assume ten months' rent per year over 20 years. To calculate the expected rental yield, divide the expected proceeds from selling the property into £6,750. Then compare that percentage with alternative investments: premium bonds, 1.35%; FTSE 100, about 4%; 20-year UK Gilts, about 2%; a three-legged horse at Newmarket; ...
Over about 100 years the rate of return on property has turned out at about 8%/year before tax. To see how real prices (allowing for inflation) of UK houses have fared, and a lot of other good stuff, go here:

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John 18th March, 2015 @ 14:15

#Guy if I put my details into the nationwide calculator it comes out at £199,000 for a house bought in 1993 for £51,000.... but a more realistic valuation I would get for ot would be £185,000.

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Guy Knapton 18th March, 2015 @ 18:29

Great stuff, John! Now we're talking real values, not Mickey Mouse ones! To summarise so far, you bought a house in 1993 for £51K. In today's money, that's the equivalent of about £91K ( You could sell the house now for £185K so in real terms you've doubled your money in about 21 years. The rate of return on your investment, excluding rental income, is about 3.4%.
It's a prudent to count only ten months rental income and not twelve. Landlords do, alas, have voids, bad debts, and maintenance/repairs/refurbishment expenses. So the present annual rental yield on your property is (£6,750/£185,000)*100=3.6%. If the yield has not changed much over the 21 years, in real terms the annual rate of return (before tax) on your initial investment is 7-8%.
The question you need to keep asking is where else could you invest £185K to earn 7-8%/year at equivalent risk? Here are present UK Gilt yields They're low now, but if you had invested in them five years ago, you'd have loadsamoney owing to falling interest rates. (Gilt prices as interest rates fall, and vice versa.) On a personal note, I've a few pennies invested here The yield on my investment is 7.83% (before tax), and investment funds don't need new roofs or painting every five years. And: they're liquid -- a telephone call and the money is mine in 36 hours! On another personal note, I don't own a property but I've some money in Britain's second largess prperty company, British Land. I've doubled my money in six years and it yields 3.32%.
Don't get me wrong: property is a wise investment, very wise. But: it's easy to exaggerate the profitability if real values are not used and if one isn't familiar with a few simple truths about investment. Of course, most houses are for living in and for all the joys that go with that. Thank goodness! Best wishes, GK

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John 18th March, 2015 @ 19:55

thank you guy for explaining , although that's also not real figures, as the house was my home until six years ago, and I have only been renting since then also, I have the same tennants for six years now and they are paying 675 since, I haven't put the rent up as I want to keep them, I used the rent money to pay off the mortgage and then packed in my job of fifteen years, so I am now semi retired and just work on a Friday for my new wife who has a fruit and veg bussiness, and I'm basically a kept man, I save the whole 675 every month , getting back to the house, I really haven't spent much at all, as I kept the house up together and modernised it while I was living in it, so all in all its all profit, and that's got to be good, I have a lovely life, I don't have the stress of a daily job which is worth more than any money you can earn . so anyway , getting back to the original subject after my life story. I basically have received 48.5k over the last six years and spent literally nothing..... with your investments you seem to know what you are doing, I don't think I and the average joe blogs would have a clue and I deed have the nerve to invest in those sort of investments... I wish I did.

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Guy Knapton 18th March, 2015 @ 22:07

You plead ignorance but you've done really well: congratulations! In the longer term, common sense is hard to beat.
I'm sorry that there were so many typos in my previous message. And me a printer for several years! I agree: work is an overrated pastime. Retired for seven years, after 47 at the coal face, I can't understand now why I did it for so long, although I had some fun amid a disaster or two.
Back to your house, if you've got decent tenants, stick with them and be wary of becoming greedy. Without solvent customers, profit is a pipe dream. You obviously fixed the place up really well, but some day you'll have to do it over again.
I make the total real rate of return (capital and revenue) on your investment about 7% (before tax), which is exactly what I would expect. It is the average rate for property over the past 100 years! And very nice, too.
I enjoy the riskiness of the stockmarket. Naturally, I balance my risks with big beasts like British Land and little ones like Halfords, on the assumption that UK Plc as a whole won't go bad for long. This game is far from being everyone's cup of tea so far better to stick to what you know and like.
My purpose was only to warn against misleading exaggerations about the money to be made in housing. Much as I enjoy "Homes under the Hammer" -- Lucy and Martin are such fun -- the programme tends to overestimate property yields. Yield must be based on property market values not, as the presenters usually do, on investment costs.
Can't wait for tomorrow, another day, eh?

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Captain Hook 18th March, 2015 @ 23:16

Good posts Guy.

What would John's rate of return be if he had re-mortgaged for 51K and taken all his original money out?

Easy to do with property, not so easy to do with shares in Halfords.

"My purpose was only to warn against misleading exaggerations about the money to be made in housing."

Couldn't agree more. And although in Johns case, re-mortgaging would have worked out fine, someone doing the same in 2007 would have been leveraging their debt.
Real example;

New build flat bought in 2007 for 120k.
10k down.
Repossessed in 2010 for 70k.
ROR -500% (Ouch!)

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Guy Knapton 19th March, 2015 @ 11:47

Morning Captain Hook:
The point you make about mortgages, or any other from of debt finance, frequently arises. I think it's flawed. The profitability of the investment is not affected by the way it's financed. In 1985 Modigliani and Miller won the Nobel Prize (rather, its equivalent in economics) for this (
In John's case, in 1993 he paid £91,000 in today's money for an asset which he estimates to have a market value of £185,000 today. In real terms (anything else is Mickey Mouse finance) his capital gain is about 3.4%/year. He rents it out for £675/month: rental yield of about 3.5%/year. No method of financing the property can alter those facts. I estimated the total rate of return (before maintenance expense and tax) on the property to be about 7% which is perfectly normal.
Methods of finance only affect who gets what share of the return. Supposing you and John each had an equal share in the house, how would that affect the total rate of return or that of the two investors?
The issue in investment is its opportunity cost. What benefits/profit are foregone by making this investment and not another? The price of a coffee is what you paid for it: the cost of the coffee is the benefit sacrificed by not buying an ice cream for the same price! For John, the question is what is the opportunity costing of owning his property. In purely financial terms, it is any investment at equivalent risk that is higher than 7%/year. I, personally, or John, I think, believes that finance is the sole consideration. That's common sense, which is all too uncommon!
Oh yes, I can borrow money to buy my Halfords shares. But, owing to the risk of the stockmarket and the power of the lender, it is generally considered an unwise decision unless you really know what you're doing. (Which I don't!) Trading in derivatives is also based on this approach
To your flat. First, in 2010 money £120K in 2007 is the equivalent of £130K. Then, your rate of return (ROR) seems to be wrong. I make it about 19% per year. The formula for this is [[(Selling Price/Buying Price)^1/N]-1]*100, where N is the number of periods between buying and selling. So: [[(70000/130000)^0.333]-1]*100=-18.6%. This is the ROR per year, and it sounds pretty horrible. I just hope it wasn't you, but if it was, you weren't alone, partly because too many good people have no clue how to evaluate the real financial benefits of buying/owning property! Hope this helps and I wish you all the best.

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Guy Knapton 19th March, 2015 @ 11:50

Captain Hook:
Oops! ROR should read -19%. And: I (and John?) don't believe finance to be the only consideration. Sorrreeee, GK

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John 19th March, 2015 @ 13:21

After all this said, some people invest in property to hopefully make money, in my case I fell into it, I bought the house with the hope of it being my wife and then girlfriends home for the foreseeable future, but as you probably know, things don't always turn out the way you wished them to, and in my case I'm now glad they didn't, as when I met my new wife, she had her own house, and as we lived 25 miles away from each other I decided to move into her house and rent my 3 bed semi out, which has turned out to be a right money spinning venture, as I don't owe anybody a penny, I paid the mortgage off with the rent money, and I now save the rest, with a nice healthy bank balance of 13k and rising 675 every month, I am 49 years old and have a nice pension pot and semi retired, I suppose I was just one of the lucky ones who had the opportunity and made a few lucky I've spent most of my life being poor, what with paying a mortgage and working in a factory for peanuts, so it's my time now, and now i have plenty of time to do what I want, and I like that a lot .

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Captain Hook 19th March, 2015 @ 15:52

Hi Guy,

Thought you might say that!

The Modigliani Miller theory is just that, an economic theory in a perfect world that doesn't strictly apply in practice here, it also ignores taxes- a significant factor in property investment.

I don't think we will agree on this one!

And whilst it is possible to borrow to invest in Halfords shares, it is not easy, particularly for large amounts and certainly not for the average Joe.

I used the flat illustration to warn others of the big risk of leveraging. You are quite right to highlight the value in real terms (something I conveniently and wrongly 'forget').

I bought that repossessed flat with 20K down.
Rented it out continuously (no voids).
I could sell it now for 100k (after transaction costs).
Or remortgage out my original 20K and start again with another flat. (I'm sure you wouldn't approve!)

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John 19th March, 2015 @ 18:05

Guy, I respect your knowledge and mathematical workings out, but I have been pondering over your equations , surely the money I spent on a property (51k) is what should be used in the working out of yield, my thinking is , I lived in the house while paying a mortgage from 1993 to 2009, my mortgage has never been more than £320 per month, if I had rented it would of been far more, so you could say I've lived cheaply, so when I left the property six years ago and rented for 675 per month, that's been all profit, the only thing I've paid for is fifty quid for a boiler gas safety service and £100 for landlord insurance per year, and received 48.5 k , so for arguments sake made 48 k profit in six years, no matter what equation you use I still made that amount, I'm not as clever as you to do the exact maths but surely it works out more that 7%.....

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Guy Knapton 19th March, 2015 @ 19:30

Captain Hook:
Oh dear: there's nothing to agree or disagree. Financial gurus are a tad smarter than that. How an investment is financed makes no difference to its rates of return: it's simply irrelevant. If you think it does make a difference, you'd have to do better than dismiss M&M as a theory by explaining exactly how financing does change ROR. Please go ahead!
I made the point using debt to buy equities. Margin transactions are everyday practice but losses can be large, even infinite! I don't do it: my pockets are not long enough and I'm too far from the action to appreciate fully the risk/reward balance.
As for remortgaging your flat, do it by all means. You'll still own an asset worth about £100K that you paid about £80K for in 2010: a ROR on the investment of about 5.7%/year. (The rental income will increase this, but allowing for expenses and tax, your ROR looks like being about 8%/year but may be a little more. Sounds good to me: 20-year UK Gilts, a risk-free investment, won't earn you that at present sky-high prices. Well done, indeed!

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Guy Knapton 19th March, 2015 @ 22:04

Evening John:
You and Captain Hook are ambushing me -- in the nicest possible way! -- to present Finance 101. If I were you, I wouldn't go there: for two reasons. First, you've done really well and I'm the first to support that. Second, I may not be the right person to present it.
Still: let's see if I can help at all. Profit or loss is the difference between income and expense. I could agree your numbers of your profit, but in my view they would be more realistic if you included a provision for maintenance and repairs. Some day, the roof will fall in, or there will be some new fashion/gizmo tenants require. And, there's the taxman to consider, too.
Profitability is a ratio, usually a percentage. Interest rates are the most frequent measure of profitability: in investment analysis the annual rate of return is the most frequent measure. Why? Because scarce resources like money seek the highest ratio of reward to risk. Might be stuffing it under the mattress; lending money to the UK Government (a risk-free investment for holders of sterling: yep, the UK Government will pay the interest and will redeem the loan ); buying property; playing bingo, ...
You own an asset worth today about £185,000. What you paid for it in 1993 is irrelevant to your choice of what to do with the value of the asset. You're sitting on 185 grand, like it or not. The question you asked indirectly was -- and you asked it -- how profitable is my investment? Cheekily, I contested your estimate, with a few facts to explain why I did so, and with my suggestion as to how profitable it had really been. You're under no obligation to believe me!
I'm not an expert in property: after 50 years studying it, doing it in big companies, and teaching it, I just understand a few things about finance, but not everything so I can be mistaken.
One last thing: I find the graphs published by the Nationwide -- who really know about property and finance -- the most illuminating information about this whole enchilada. Since the first quarter of 1975 to the last quarter of 2014, real UK house prices have increased by 2.7% per year. Rental incomes net of expenses have got to be pretty high to bridge the difference between a rate of return of 8% -- the long-term average -- and a real price increase of 2.7%.
With this, please don't get me wrong, property is usually a wise investment but there are alternatives. You should stick to property: you trust it; you like it; and you do well with it. All the best, GK

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John 19th March, 2015 @ 23:49

Good morning Guy.
The way you explain is beginning to make sense, and Indeed the penny is on the edge, if my roof does fall in then it's going to cost me big time, and to be very honest the roofing felt is very brittle with a few holes, as I said earlier , I have kept my rent low as to keep my tennants , and to be honest after long thought, in the long run its me who will be the loser if that happens, the tennants will just move to nice warm and dry nest and will leave me with the bill.
I am quite handy with many types of repairs, and do now have a small roof repair to do, just a trowel full of concrete will do it, while I got the ladder there I will clean the guttering and sofit boards, when this is done it is my intention to put up the rent, as I have been thinking about it for a while, as the going rate for an equivalent house is around 775-800 per month, I suppose Iike you have made me realise, I do have a big risk of losing a big chunk of everything I have made, and it's ok for me at the moment as I am rolling in the money, but this really could happen, I need to look at the bigger picture..... thanks Guy...I want you to know I am listening and learning from you.

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Captain Hook 20th March, 2015 @ 12:30

Sorry Guy, I'm not arguing theory with you, Modigliani or Miller!
I'll have a go at practice against theory though.

You have made two slightly different statements which highlight this;

How an investment is financed makes no difference to its rates of return.

Which I agree.

The profitability of the investment is not affected by the way it's financed.

My understanding of 'profitability' is the amount I put down on my tax return each year.

Paying 2% mortgage or 20% mortgage, 100% LTV or 0% LTV, finance offset against tax of 0% or 40%, all affect the profitability (and the opportunity costs).

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Captain Hook 20th March, 2015 @ 12:46

I'd also like to point out that property is not a pure 'investment' (at least, not in the way I do it!).
There is a large element of it that requires work.

Halfords shares don't phone you up at midnight requesting urgent repairs!

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Guy Knapton 20th March, 2015 @ 13:46

Am off to my wife's home town, Berlin, for the weekend. I'll post more stuff on Tuesday, which I hope will help you a little. Till then, thanks for your kind words, GK

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Rob 21st March, 2015 @ 09:16

Hi, as property rises in value so your yeild decreases. Can u factor in a rent increase to take the value of the property into consideration?? If so how? Rob

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Uche 23rd March, 2015 @ 22:58

Quite interesting perspective to property investment from the comments above

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Guy Knapton 24th March, 2015 @ 11:47

Morning Rob:
Good question and not hard to answer. To your first question: yes, to which I would add that it is vital to do so for reasons given in answer to your second question.
First, please spend some time to know and understand the excellent data provided, free, by Nationwide. Try here and look around:
Then, be sure you understand the difference between nominal prices and real prices. Nominal prices are the prices quoted daily/monthly/annually. Real prices are these prices adjusted for the rate of inflation. This changes over time; differs from region to region; and from sector to sector. For excellent stuff on the effects of UK inflation try here: For great stuff on the effect of inflation on UK average house prices since 1975, try here This site uses Nationwide data, the original of which you can find easily but in Excel format.
Over forty years the average annual increase in price of the average house in the UK has been a snitch under 3%. These averages conceal differences that should not be ignored. However, on average, over the life of the property, to maintain the rental yield on UK property, rent increases should average about 3%/year.
Now I know that rent increases may not be easy to put into practice. It must be easier to increase rents annually in small amounts than seldom in big ones? The Nationwide index is an objective standard that most tenants should accept more willingly than some arbitrary guess! Anyway, for landlords, the simple fact is that, in the longer run, yield will decline if real rental income is not maintained. Failure to do so can even be ruinous.
A question. Are you satisfied that your present rental income as a percentage of the present market value of your property is about right? If it's less than 6%, you may have some catching up to do: ugh! If it's 8% or higher, you're doing well so try to stick with it without becoming too greedy -- geese and golden eggs and all that :) Solvent, loyal, respectable tenants paying a fair rent on time are worth their weight in gold: involuntary voids, bad debts, reckless damage, and litigation are hideous.

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John 24th March, 2015 @ 12:56

thankfully I don't suffer any of the hideous items in the last paragraph...and I's better not to be greedy, I thought I might put my rent up 50 as I haven't increased in six years, but I've thought long and hard and am going to be a nice landlord and treat my nice, clean and tidy tennants in a way they deserve , I know I could get more and the going rate is more, well...the ones on the "for rent" websites are asking more....this is the reason they aren't occupied....greedy landlords.

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Robert 26th March, 2015 @ 15:54

Hi Guy,

I am looking to invest my personal pension pot into buying a property and renting it out with the aim of getting a return of around 6% per annum based on £85000 purchase and rental income £450/month after agent fees + Insurance. The annual return is around £5400.

If I keep the property for 10 years I would hope that the sale of the property would also return a reasonable profit but would no doubt be liable for tax.

I am a coward when it comes to gambling but would ask if you consider the above to be a wise choice?

Any comments (clean only) would be welcome?


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John 26th March, 2015 @ 17:00

when I first started with my rental six years ago, I just put an advert in my local journal for two weeks but found my tennants in just one day, I got the local letting agent to do the tenancy agreement and inventory, sorting everything for a one off fee of approx £100, this keeps the costs down if you manage it yourself.
As for buying a property then depends on wether you need your pension money for other things, if it's surplus money then go for it, if you are lucky enough to find some sensible tennants like I did then you can't really go wrong....that said...I've recently been watching my pension pots and they seem to be doing very well at the moment, I have two pension pots total value 56k, I registered and got an online account so I can look at their value, over the last two months they have risen 2.5k , last week alone I saw a rise of £460, so worth checking this out, as your money might be better off left in your pension for now, worth checking up on anyway....good luck....!

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John 26th March, 2015 @ 17:20

I drove over to my rental today to inspect the roof, seems ok apart from I ended up cleaning the guttering and facia boards, nothing my powerful power washer couldn't handle, although I need to go back now and back and paint them, power washed the path ways and patio while I was at it, fixed the shed roof and treated the front fence with some wood preservative, anyway, being able to do all these minor jobs is all good for your pocket, as it can be expensive if you have to pay other to do it.
I did have a little look at the halfords shares you mentioned and they seem to be a good buy at the moment, well, according to the experts....I've been thinking for a while I would like to have a go myself but don't know a lot about it, I could maybe just start off with a few hundred quid and see what happens, as I think you have to have a little bit of a gambler inside you if you buy big, and I don't know if I would have the nerve....

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Guy Knapton 26th March, 2015 @ 22:43

I'm flattered that you think I'm qualified to advise you on an interesting proposal. Thank you.
Sadly, I'm unable to give you wise enough advice. Nor do I know enough about your circumstances or your wishes to give you reliable advice. And: not living in the UK I'm insufficiently familiar with UK tax and other significant aspects of the likely consequences of your proposal.
On property as an investment John's advice will be more helpful than mine. If I may balance his knowledge and enthusiasm for property, here are some issues for you to weigh:
1. What is it about your present pension arrangements that dissatisfies you? If it ain't broke, why try to fix it?
2. How sure are you that your annual rental income will be £5,400 for ten years? I advise you to be more prudent by assuming ten months' rental income per year: you can expect voids/bed debts/repairs & maintenance/litigation.
3. Why would a yield of 6% before tax be an acceptable rate of return for you? It would be easy to recommend to you a £1.2bn High Income Unit Trust yielding over 7%/year. (I can't do so: I'm not a qualified financial adviser!) Unit Trusts don't need maintenance; not all 102 companies in the FTSE Index will go bust!
4. It's generally considered wise not to put all one's eggs in one basket, including in property. Have you a sufficiently diversified portfolio of assets to weather the inevitable market ups and downs? Real prices of UK houses in 2014 Q4 (£189,002) are way below their peak in 2007 Q3 (£228,986). Property investment is not risk-free, nor is it especially liquid -- it's subject to potential losses and is not immediately realisable.
5. I'm all for property, especially for living in, but the cost of investing in it are all the benefits you forego by not investing in something else. This trade-off is too often ignored; alternative investments are not properly evaluated; and the return on property investment is too easily exaggerated by not using real monetary values.
6. Many people do well with property. Too many lose their shirts but they don't make the headlines, so we ignore them.

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Guy Knapton 26th March, 2015 @ 22:51

In haste. Don't buy shares in Halfords, for goodness sake! I'm not qualified to give investment advice. I was only citing one stock I happen to own as an example. not as a recommendation. Buy any stock you like but only if you've taken advice from a reputable, qualified financial adviser you know and who knows you.
If I were you, I think I'd stick to property. But even this is only a thought.

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John 26th March, 2015 @ 23:03

it was never my real intention to do so Guy, I think I'm going to keep my money and save it, if I was ever to buy shares it would be mulberry (mul) it's a high end leather goods company I worked for for fifteen years, if I had more knowledge about buying I'm sure I could make a killing.

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Robert 27th March, 2015 @ 12:13

Hi Guy,
Thank you for your email..

In answer to:-
Q1: My pension savings are held in a buiding society with little yield at present. These savings are not making suitable return and eventually my 'non-sustainable pot' will begin to diminish as I draw from it, when I take retirement.

Q2: This was an assumption - naivety on my part after reading the rest of your comment.

Q3: It seemed a better return than present and with no experience of stocks & shares I felt this would be a more suitable venture.

Q4: I agree..

The remainder are understood and I thank you for your comments.. Like many people, I am wary of the future, especially in retirement and I was looking for a suitable investment that would provide sustainability and future inheritance for my children. High Income Unit Trusts may be a better investment, I will discuss this further with a Financial Advisor.


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Benji 27th March, 2015 @ 12:44


I will discuss this further with a Financial Advisor.

Bear in mind that no commission based financial advisor will advise you to invest in property.

It is a bit like asking an estate agent if you should invest in unit trusts or property.

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Guy Knapton 27th March, 2015 @ 15:34

FWIW, I doubt if a bank or BS is a wise choice of destination for your pension pot. In spite of the BoE's recent statement on UK inflation, I bet your (personal) rate of inflation is gnawing away at the principal.
To repeat, I'm not qualified to give financial advice so what follows is only how I meet the challenge of a decent retirement: it's not, repeat not, a set of recommendations. Just thinking aloud?
For a rainy day, I have some dosh in Premium Bonds. They pay 1.35%/year and no tax: I just like a no-risk gamble offering the possibility however remote of a neat windfall. Winnings of £25 come my way regularly. I think it's a cool way of ensuring that, in case of an emergency, I can get my hands on some ready cash.
It's important to decide what one wants from investment. Safe-as-houses; high capital appreciation; and high income investments are a figment of our imagination. Investments that increase strongly in value seldom have high running yields: high yielders seldom gain strongly in value. Renishaw has done me really well but pays peanuts, 1.85% at yesterday's closing price. My Vodafone are down but they pay a cool 5.49% and I believe it's a quality stock. I like 'em all and I have a few more that together yield 4.43%/year and that are 23% up over five years, a gain of about 4%/year. I judge a total yield before tax of about 8%/year to be not too shabby for someone on the wrong side of retirement age.
I can do some really dumb things, though. Trading is the dumbest: trying to outsmart the market. Me? Outsmart the market? Dope! If I leave it alone, it does the business much better. I followed financial gurus and bought into a great brand with a 100+ year history and a turnaround under way. Hello HMV and there goes my modest stake down the toilet in less than two years. Dope! And I could go on but I won't.
For me and, by the sound of it, for you too, a good bet has to be a UK index-tracking Unit Trust or ETF. These beasts are usually big; they're invested (mostly) in UK Plc; and they mostly do what's on the tin. On one of my tins it says "Schroder Income Maximiser" It's held up well without being spectacular (so it'll never make me rich but I'm not over-bothered), and yields a juicy 7.77%. Of course, its price can go up and down in the short term, which also doesn't bother me, but over ten years or more the value of the fund just will increase if I don't mess with it, and it satisfies my real purpose for it: income, income, income. With dopey exceptions like HMV I buy stuff for a specific purpose that I can check out later -- eg Renishaw (growth) and Schroder (income).
That's my ten cents worth, Robert. Proceed with caution, but fortune favours the brave (my school motto). If you find a place for your pension funds that pays loads more than 7-8% at equivalent or lesser risk, please be kind and let me into your secret -- a secret I could easily keep:)

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Benji 27th March, 2015 @ 16:56


I'm not a financial advisor either but here is my 10 cents worth for consideration (using my personal risk level).

Split your pot roughly into 3.

1/3rd in low risk premium bonds/ building society (tax free, post budget).
1/3rd in medium risk FTSE tracker ISA (tax free).
1/3rd in high risk £85000 rental property, financed thus-

35% deposit (£29750)+ transaction costs (high!)
65% loan to value, 5 year fixed rate, interest only BTL mortgage @3.89% from TMW (other lenders exist).
You can take out a BTL mortgage up to age 70 years old with TMW, potentially taking you to 95 years old before expiry.

£5400 pa rental income (check & re-check this) minus £2150 pa mortgage interest payment- Guy can baffle you with financial science on the return of that.

Rents/house prices will, more likely than not, increase over the medium to long term.

Landlording is more of a 2nd job than an investment, study it for a few months before taking the plunge and join the RLA or NLA. Don't rush into buying.

Other factors to consider are your personal tax situation. Rental income is taxed at your income tax rate.
Capital gains tax is payable on gains over £11000, currently.
If you have a (trusted!) wife/husband/long term partner, look into putting the property in joint names.

Do your own research, when you think you know it all, do it all again!

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Guy Knapton 27th March, 2015 @ 18:20

Good thinking, Benji, especially the "2nd job" comment. It's so easy to believe about property investment what we want to believe and not what the facts about it are actually telling us. I know no way of making profits easily or without risk. The main risk in BTL is the security of the tenant's income, and that's pretty risky.
May I take advantage of your thread by passing on to Robert some financial numbers that I forgot in an earlier post. If he were to invest his pension in a property bought for £85K, in ten years time it would be worth about £110K [£85,000*(1.027^10)], if real house prices continue to rise over the next ten years as they have, on average, since 1973. As the price of the property he has in mind is less than half the present average UK house price of about £190K, its price in real terms may rise more than the long-term average of 2.7%/year owing to increased demand from buyers unable to pay exorbitant prices.

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Mark 2nd April, 2015 @ 23:45

Lots of interesting comments and some useful info. Thanks everyone. I am a property investor/developer and have regular access to many below market valued properties from various sources. The challenge is that other people have access too so time is the essence doing due diligence and running all the numbers to see which deal is worth moving on, quickly I might add. I have created a fantastic tool that I use for giving me all the bottom-line numbers so I know if a deal is worth it, or not, quickly and hopefully ahead of my competition. I enter purchase price, market value, any renovation costs, legal fees, ground rent and service charge costs if applicable, etc. My results show me immediately what my ‘real’ returns will be taking into account every single imaginary cost including working out any SDLT due too and agents costs if flipping the asset. Any of the inputted values can be manipulated on the fly to see how the results can be changed, if wished. i.e. changing mortgage interest values and amending the rent up or down to see what returns can be achieved etc. I am going to make the tool available for a very small fee and I’m also working on producing an App later (it has been started). The spreadsheet is work-in-progress at version 1.25 and almost perfect. It would be great gauging any interest now please so I would love to hear and receive feedback about this tool on this site or send personally via email if my email address gets published here. Cheers Mark (

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Mark 2nd April, 2015 @ 23:48

Lots of interesting comments and some useful info. Thanks everyone. I am a property investor/developer and have regular access to many below market valued properties from various sources. The challenge is that other people have access too so time is the essence doing due diligence and running all the numbers to see which deal is worth moving on, quickly I might add. I have created a fantastic tool that I use for giving me all the bottom-line numbers so I know if a deal is worth it, or not, quickly and hopefully ahead of my competition. I enter purchase price, market value, any renovation costs, legal fees, ground rent and service charge costs if applicable, etc. My results show me immediately what my ‘real’ returns will be taking into account every single imaginary cost including working out any SDLT due too and agent’s costs if flipping the asset. Any of the inputted values can be manipulated on the fly to see how the results can be changed, if wished. i.e. changing mortgage interest values and amending the rent up or down to see what returns can be achieved etc. I am going to make the tool available for a very small fee and I’m also working on producing an App later (it has been started). The spreadsheet is work-in-progress at version 1.25 and almost perfect. It would be great gauging any interest now please so I would love to hear and receive feedback about this tool on this site or send personally via email if my email address gets published here. Cheers Mark (


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