Investing in Property UK. The Figures Don't Add Up Now

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Investing in Property UK:
Are the Numbers on Your Side?

If you're considering investing in property in the UK, you may run the risk of bankruptcy....

What do I mean by this?

Well, the market is so overvalued that I'm amazed to see UK property investment companies offering buy-to-let investments to new investors.

They’re offering yields as low as 4%, masking the properties’ true returns with "discounts".

This gives the investment the false appearance of being viable. What's even worse is that these companies demand thousands of pounds in finder's fees for sourcing these investments.

As an investor, the first question you need to ask yourself before investing in property is,

“Will This Investment Make Me Money?”

One of the ways to answer this question is to calculate the anticipated yield of the residential investment property.

You’ve most likely heard property investors use the word "yield".

However, what exactly does it mean?

"Yield" is an extremely important concept to grasp. The yield indicates to an investor the anticipated earnings on an investment, or the rate at which the investor will earn money from the investment. All other things being equal, the higher the yield, the more attractive the investment is.

You must aim for a yield that is at least 2% above your borrowing costs in order to cover your mortgage payments and other property-related costs.

Here’s an example of how investors calculate a gross yield when investing in property in the UK.

Divide the yearly rental income by the purchase price. Then multiply that amount by 100. This is your gross yield.

Let’s say that you’ve just seen a potential UK property investment advertised for £140,000, with a monthly rent of £650.

Example

The gross yield for this investment is 5.6%

Yearly rental x 100 = gross yield
Property price

£7,800 x 100 = 5.6%
£140,000

The gross yield calculation is a quick way for investors to compare returns on investing in property with returns on other forms of investment.

However, you need to break down this calculation for a more in-depth analysis of the true costs and income associated with investing in rental property.

Rent per year	£7,800
Less
Mortgage interest (6%)	£7,140
Management 12% plus V.A.T	£1,099
Buildings insurance	£240
Repairs say at 5% of rent	£390
Landlord's yearly gas certificate	£70
Void period say one month	£650
Total reductions	£9,589
Total loss	£2,449 per year

That's right… notice how in this example you had a total loss of £2,449 for the year, even though you started with a gross yield of 5.6%. In this scenario, you've basically paid for the tenant to remain in your property for the year.

In most parts of England, yields on UK property investment are now around 5%. In Southern England it’s even worse, with yields around 4%. In most major UK towns, yields are now as low as 3-4%.

North East of England and Buy to Let in Scotland are currently the only places that offer a decent return when investing in property in the UK. In those two places, yields are around 7-8%. Property prices in these areas are rising rapidly because of the demand from first-time buyers and buy-to-let investors.

Remember! A high yield means a high-risk investment. A low yield means a lower-risk investment, and greater capital value.

So what does all this mean?

Unfortunately, it means that investing in property in most parts of the UK is overvalued. The days of making money in the buy-to-let game are over.

You should be focusing your property investment decisions either in the north of England, Scotland or overseas.

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