What return can I get on property investment?

[Bronte]

Would an investment in a BTL produce an annualised return on capital of over 4% per annum over the same time horizon as the term of a PPR mortgage after all costs and taxes are taken into account? It might but it's very far from guaranteed.

I don't know Sarenco but this I do know, despite not much liking being a landlord anymore I'm very glad I'll eventually own some property. I was thinking of going back in recently. I reckon I could get 17K before tax on an investment of 200K. But then the mantra on here is spread it around. I'm only small fry but property is all I know. But we are plenty diversified in cash and pensions.

One thing also to point out about putting all your money into your house, as you get older, like me, you will get to an age when it may not be possible to borrow, loss of job, age, illness, etc.

What do you reckon my return would be with 17K on investment of 200K. Leave borrowings out of it for now.

 

[Sarenco]

What do you reckon my return would be with 17K on investment of 200K. Leave borrowings out of it for now.

Depends on the holding period, whether you are including (or deducting) net income (or net expenses) on the asset and whether that's before or after tax.

 

[Bronte]

Depends on the holding period, whether you are including (or deducting) net income (or net expenses) on the asset and whether that's before or after tax.

Make it 20 years. Income is less usual costs of a property, that's not a lot if you have it in tip top shape at the beginning in my experience. Down the line there are of course problems that can occure (roofs, I've done a few !, boilers, lots, are the most expensive that I remember) Let's say it costs 5K a year in repairs or thereabouts. So you've 12 left.

Then you've to pay tax and usc. 50% of 12 leaves 6K. If you pay less tax, like someone with no other income, or are exempt from PRSI like me then it's less of course.

The 200K then has to be adjusted I guess for inflation. But we ought to leave that out of it.

Edit: you have bad years of course. I remember not a bad year but a proper refurb cost me around 7K in a three bed semi d. Painting, new tiling, cleaning. I got polish painters one xmas and they painted the place in three days flat or something like that, my OH will never forget it as he was in bed and they went in to paint and he went to the bathroom and another followed him there, he went to the pub after that as he couldn't take any more. - we're not doing that ever again !) I think the painters cost the guts of 2K.

 

[Sarenco]

That's a gross yield of 8.5% (17/200k x 100), which would give you a net yield of close to 6% (70% of gross yield) - that's a very good yield BTW.

Here's a link to a more detailed post that details my rationale for deducting 30% from the gross yield to arrive at the net figure.

http://www.askaboutmoney.com/threads/buyers-remorse.196291/

Actually, I've just realised that 5k expenses on 17k gross income is just over 29% (for what I assume is an average year, expense wise) so that ties in pretty well with my own rule of thumb of deducting 30% as an estimated long term average.

So, if you're paying a marginal rate of tax of 50% throughout that period that leaves you with around 3% after tax.

Don't forget that you also have to add capital appreciation (if any) to arrive at a total return figure and to (notionally) deduct acquisition/disposal costs and CGT. Would that add another 1% or so to your annualised total return figure to bring you to around 4%?

That's obviously very much a rough "back of an envelope" calculation but hopefully it helps.