Rental Yield Calculator – Property Investment

@Benji
Your reference to turnover tax is the one bright spot in your previous message, and an interesting one, too. An expat for almost 50 years, I'm not expert on UK tax or on UK property. I only claim to know about investment analysis. Such "financial intelligence as I may have is not mine: I just stand on the shoulders of giants like Modigliani and Fama.
As Hayek wrote, "the power to tax is the power to destroy", so any decision to tax or to change tax rules is, as you correctly imply, potentially dangerous. I understand your concern.
From what I know and read, the UK property market is in a serious mess and has been so for many years. The very idea that an essential of life, shelter, is beyond the means of the average citizen or couple is simply absurd. Add to that the certainty that UK food prices (and many others) will begin to rise from March 2019 and the UK is going mad!
On the countries which I know and where I've lived, the property market is far more orderly and, with exceptions, property prices are reasonable for owners and tenants. In general, property law in Germany, for example, is tilted in favour of the tenant so home ownership is low because rents are also reasonable, though rising in thriving cities like Berlin and Düsseldorf, which is one of the richest cities in Europe. UK tenancy law is unthinkable in Germany or Belgium or the Netherlands. Yet, new builds of every kind are visible everywhere and city centres like Chester or Barrow are unknown! The seaside towns of the channel cost of France are among the most prosperous places anywhere. I've yet to understand the causes of these significant differences. Maybe you do?
Taxes are the fair price we all, landlords included, must pay for a civilised society. As my contribution to such an important debate, I choose to argue the investment analysts' corner. This is that the tax regime should not favour one investment over another. In other words, I want to be able to choose how I invest my assets without any consideration of the taxes due. I do not want to be induced to invest in A rather than B because the tax man makes A more attractive than B. I want to invest in A rather than B because, all things considered, for me it's a wiser use of my funds.
In all important respects, BTL is a business. So are investments in stocks and shares. There should also be fair treatment of any such business undertaking so that we may make wise choices.
In the multinational corporation where I worked for 20 years, our investment analysis procedure paid no attention to differences in national profits taxes. The differences were wide and the rates changed frequently. To overcome this and to compare all investment proposals on a consistent, equivalent basis, to all investment proposals we applied a notional tax rate of 35% so that the appraisal was based on the intrinsic business merit of the proposal and not on the whims of governments.
In addition, tax only affects the distribution of operating profits/losses to the shareholders. The investments were in the USA, Argentina or Italy or wherever: the shareholders of the investment were often based in tax havens like Delaware or Luxembourg!
In the UK I read of a continual imbalance of supply and demand for housing. I don't know why supply seems always to be lower than demand. Presumably, one reason is that UK property is not sufficiently attractive compared with alternative investments? What are they? What are the impediments to investors like you to investing more in property? You know: I don't, I can only speculate.
What I think I know is that it will take a brave person to invest in Chester city centre (and dozens of others). With the spectacular fall in sterling, and further surely to come, is the UK a wise choice of destination for property investment which is not liquid? Are bricks and mortar, or inflammable cladding on luxury Thames-side blocks, a wise investment? Will the High Street survive? In my case, when it comes to property I -- only just! -- prefer to add to my holding in British Land. They yield 4.49% today and I'm 70% up but over several years, so not spectacular.
As I say, tax is not my strong point. Your Landlord association and the government seem to be having a grown-up debate on what is an important issue. I hope it will be resolved fairly and sensibly so that the UK property market is a lot more efficient in the future than it has been in the past. I'm not that optimistic, alas.

@Guy,

The seaside towns of the channel coast of France are among the most prosperous places anywhere. I've yet to understand the causes of these significant differences. Maybe you do?

If you mean seaside towns like Le Touquet and Deauville, then I think it is due to being Paris-on-sea, horse racing, casinos and a hangover from the English heyday. A bit like Brighton being London-on-sea. Proximity also to Benelux.
I wouldn't describe Le Havre or Calais as particularly prosperous.

(Just looked up Le Touquet on wiki and the above could be a cut and paste, but it was based on having property in the area)

@Guy,
Taxation and legislation are the biggest barriers to UK residential property IMHO.
The big institutional investors are dipping their toes in but will need a lot more incentives if they are to provide accommodation on the scale needed.

@Benji
They won't get them.
One way or another, taxes are one of life's inevitabilities. As for UK legislation, I don't know the details. What I do know is that UK tenancy legislation makes no sense whatsoever to German lawyers (my wife is a German lawyer who practised in real estate for several years) or in Belgium. With the prospect of a Corbyn government and more Labour local councils, I would expect more, more restrictive legislation not less.
In my classes I used to preach that it's no use business people wishing or hoping for less uncertainty, less risk. They'll never get it. The future is not risky, it's unknowable, so we must keep going in the hope that, in retrospect, we shall have made more wise decisions than unwise ones. As Churchill was keen on saying, "KBO: keep buggering on". Hoping for lower taxes and less legislation is hoping to find a crock of gold, so KBO.

@Guy,

Germany have the opposite problem to Britain; a declining population. Around 30% of the population is over 60. And the size of the country is a lot bigger. Their housing market is a different kettle of fish.

They won't get them.

So if they just keep buggering on, tightening the screws, what will be the financial result?
Obvious answer is less rental properties and increased rents. Or do you foresee something else?

@Benji
Three remarks before we leave for ten days in the Périgord:
1. Chester is a former Roman town with a distinguished history; near a major, moneyed big city; and surrounded by posh places like Altrincham. When I was a kid, Brighton and Bournemouth were grand places. Now? Down at heel. My old (Irish) mother used to say that, when the Jews left them, that was the end. Yes, like most port cities, Le Havre and Calais are in trouble.
2. You tempt me to get my crystal ball out. Sorry, I don't have one. What I do know is that the property market in the UK is inefficient and has been so for about a generation. As long as supply and demand are in such chronic imbalance, no matter what the causes of it, the chaos will continue. One cause may demographic changes, but the differences in population-by-age between most large EU Member states seem to me not to be significant. The German property market (and others) in some cities, Berlin for example, is under pressure from the arrival of a large number of immigrants.
3. As for WSC's wartime remark, property dealers like you or British Land just have to KBO. It's what you know and understand, so why change unless you take a view that the property business is, like tinkering, over. The point I was making is that, for 47 years, I heard business people wishing for "better times ahead". Dream on: they rarely come and, even when they do, they're not obviously recognisable! Successful people are able to adapt to whatever conditions arise: they have effective coping capabilities. Brexit will test to the limit the British people's ability to adapt as well as their coping capabilities. The forthcoming changes from being a Member State on 29th March 2019 to a third country the following day will be dramatic, no matter what any citizen voted for. What the effect of those changes will be on you property portfolio, I'm unable to foresee but you personally better be paying careful attention to them. By October 2018, the EU die will be cast and it's not looking promising for the UK.

Loving the banta on here! My phone started pinging with emails from this website about a week ago . . ignored them at first . . then was curious to see why I was getting all these notifications! hahah . . this old chestnut. The "recent" tax introductions in the UK market is a political debate (section 24 and other introductions) ... but I think it's an important aspect which I'd consider relevant to an investment decision

Owing to a flood of tiresome notifications from spammers from the Indian sub-continent -- I'm pretty sure -- I'm checking out of what is an interesting website.
Before doing so, I wish to answer Dom T's message of 5th May. Of course tax is important. Without knowing the details, I'm sure that Section 24 has important consequences for property owners.
What I also know is that tax is not relevant to investment decisions. Interest rates are quoted gross; yields on all stocks and bonds are quoted gross; bookmakers' odds and rates of return on all possible investments quoted gross.
Of course, those -- and there seem to be some -- who deny that there are alternatives to any investment may fail to allocate their resources as efficiently in the long run as those who choose to follow my suggestions in previous posts.
At the risk of irritating Benji, I repeat: over a 20-year lease, a landlord cannot reasonably expect 240 monthly rents. There will be voids; repairs and maintenance; fees, litigation and bad debts. Ten months rent a year over 20 years is a prudent estimate to account for the future financial risks of investment in property.
May I end my participation in this debate by pointing out an important mistake in the first page of the website. The Landlord's ambitious formula for the annual yield on a rented property should read:
Annual gross yield = [mrr*12/i]*100
Good luck to all landlords!

Thank you for your understanding despite some disappointment.
I fear I may be even longer in the tooth than you say you are, and you're right that, at my age, I do best what is simple and straightforward. I stress test, to use a modern term, every proposal I hear because one of my few certainties is that we have an irresistible urge to believe what we want to believe rather than what the facts are telling us. For example, I constantly hear that investment in property is gold at the end of the rainbow, which it's no such thing, but it is unquestionably a wise, even essential, component of any sound investment portfolio.
As for my simple approach, cash seems to be a poor investment so I only have available what I may need to cover an emergency or unforeseeable calls for cash. BTL is too much like hard work for too little reward, and property is too illiquid for me when, at my age, I may need cash quickly. I don't understand Gilts and other fixed interest stocks, or gold and currencies and stuff like that. So I'm left with the London SE. My modest portfolio of 21 shares, which consists of the usual suspects and a couple of more daring shares, pays me about 4%/year and its value broadly follows the FTSE 100 index. Over the long term I've done OK and kept my boat afloat. I'm not clever enough to speculate, so I trade seldom and BTH (buy to hold). This year I've lost money since May, as have most equity investors, but I don't care: I have faith in the longer-term future of the UK economy, which I expect to grow over this parliament above expectations.
In general, I use three main financial indicators to evaluate my equity portfolio or a particular share: the price/earnings ratio (P/E), the dividend yield and, for a particular share only, the sustainable growth rate. Lastly, I pray for a little luck without which few of us can succeed in any human endeavour.

Hi there, please excuse my ignorance or lack of knowledge, as I’m new to BTL or Property investing.

I’m recently soon to realise my late Mother’s inheritance money, and I wanted to use a majority of it to buy an investment property.

Now, if I buy a ‘flat’ outright as a cash buyer, do I still need a Buy to let Mortgage to ‘interface’ between a tenant and myself?

Or do I simply draw up an agreement or contract with an Estate Agent to do this?

As I understand I don’t really need a ‘mortgage’ as such as I’d have bought the place outright.

I understand I’d still pay stamp duty, ground rent and all those charges, but the monthly ‘mechanism’ for me to realise any rental income - how do I set this up????

Thanks very much for any information, and sorry if this is schoolboy obvious or basic - it isn’t to me !!!!

Thank you very much for this amazing post. Really helpful.

merely suggested a property investment calculator was an aid? Guy is perhaps over-cautious; there are many outlets of investment properties and good ones at that, property brokers market repossessed properties for example and take a commission or finder’s fee, developers sell ‘investment’ properties after completing any refurbishment, the key is due diligence -do your homework, and then do some more. If the numbers stack-up, why shouldn't you buy from someone who’s selling a good investment property?

Thank you for this excellent blog