How do you assess BTL opportunities?

[DanBob]

Hi, I’m starting my BTL journey and want to understand how everyone goes about assessing multiple BTL opportunities.

Some people seem to work on a 7%+ gross yield basis, while others drill down into net ROI which gets pretty complex when comparing lots of properties.

What’s the best approach? How do you assess your investments?
Thanks folks

 

[FWL]

Initially you can only compare gross rental yield per property as you probably wont know insurance, finance and general running costs on inividual properties. However, you should be able to estimate general running costs after doing a bit of research on the internet. A gross yield of 7%+ is very attractive, especially when you consider base rates are just 0.75% - sometimes its best to look at rental rates relative to base rates, inflation, etc.

 

[totallyproperty]

Hi, I’m starting my BTL journey and want to understand how everyone goes about assessing multiple BTL opportunities.

Some people seem to work on a 7%+ gross yield basis, while others drill down into net ROI which gets pretty complex when comparing lots of properties.

What’s the best approach? How do you assess your investments?
Thanks folks

Hi Dan,

welcome to the forum.

I agree that 7% yield is a popular (minimum) yield to aim for. In regards to ROI, i think you should take it into consideration when comparing properties. For example, if there were 2 properties in the same town that offered the same potential Yield... but one was a new build (and required no work) and one was an older property requiring a light refurb (but had potential to add some value)... then it could be a better investment to opt for the property that allowed you to increase the capital value of the property. That isn't 'cash' you would see at the beginning, but would help give you a higher return on your cash invested overall.

What area of the UK are you looking at investing in?

Kelly

 

[PostBrexitInvestor]

Ah that is very interesting @totallyproperty because I think many people might have opted for the new build as there was nothing else to do but rent out the property. Taking a step back and looking at the situation from a distance, If you can add value to a property then I presume you can charge a higher rent, increasing your income, and hopefully see a bigger increase in capital value going forwards.

Sometimes its not the obvious actions you should be taking!

 

[Joshua Baines]

Hi Dan,
Personally I work on ROI and not yield. The reason I do this is because I like to know how much money will be going into the property and how much money will be coming out, and how fast i'll be getting back my money.
On a standard buy to let, all you need to know is the purchase price, what the cost of any refurbishment to the property will be and what the property will rent out for.
You then need to work out how much you'll be putting into the property (this can differ depending on if you're paying cash or mortgage),then work out how much you'' be making a month after cost deductions such as bills,mortgage and management from your rent.
To work out your ROI you need times your monthly profit (rent after costs) by 12 to get your annual profit, then divide your annual profit by the amount of money you're putting into the property and times this number by 100. This will be your ROI as a percentage.

Hope this helps.

 

[lookinginvest]

Hi @Joshua Baines

When estimating a return on investment, would it not be prudent to use 10 months of the year as opposed to full occupancy of 12 months?

 

[realdeals]

What you are looking for with your investments will dictate in which areas your buy property. There is a big difference between looking for rent with a bit of capital growth as opposed to looking for capital growth with a bit of rent. I hope this makes sense