HAVING YOUR CAKE AND EATING IT – INVESTING FOR RENTAL YIELD AND CAPITAL GROWTH
Delivered at the Property Investor Show ExCel London – March 2011
Who Are We?
Mat Littlecott – ProVenture Property
(Private International Investor and Consultant)
Susanne Weise - ImmoSence
(Germany-Based Management Specialist)
Markus Ponitka - Deutsche Bank
(Germany-Based Finance Expert)
Aim of SeminarTo make this the most valuable and interesting 30
minutes of your day, providing new perspectives to
investment
Scope:
Discuss where money is made in property
Monthly cashflows Vs capital gains
Examine trends in capital price appreciation – using yield
Look at markets – UK, USA, Germany
Locations
Quick QuestionWhere is most of the money made in property,
monthly rental income or increase in property value?
Capital Value increases, especially if leveraged
[by 500% in my case, over last 20 years]
BUT! - Monthly rental yield is a great indicator for when capital increases occur
Simple Yield
Annual Net Rental Income Generated
Current Value of Property
£10,000
£100,000
10% yield
Yield Break-Even Point
Residential Property
Unfurnished Property = Finance pay rate +2%
Furnished Property = Finance pay rate +3%
Houses for sharers / students = Finance pay rate +4%
Yield Break-Even Point For UK
Residential Property
Unfurnished Property = 5% +2% = 7%
Furnished Property = 5% +3% = 8%
Houses for sharers / students = 5% +4% = 9%
The Yield “Reward”
Yield Reward = Net Yield – Yield Break Even Point
A Yield Reward of 0.1% means money starts going into your pocket!
This is important, to ensure interest rate conditions and running costs are accounted for.
Graphs Are based On
Prevailing rates for investment new 5 year fixed mortgages, in each year
Net Rental figures for a given property House Prices as taken from public records
Triangle of Fire
Property Triangle of Capital Growth
Capital Growth Triangle
Identifies when next period of growth could occur Favourable finance conditions Positive Yield Rewards Confidence in the market
– Unemployment stable or decreasing
– Stable prices for a period
– Population stable or increasing
– Economic factors favourable – GDP > inflation
Some Live Property Examples
UK
USA
Germany
UK - “Average” - 2 Bed in Reading
Triangle – none
Price - £175,000
Net rent - £750
Yield reward – minus 1.86%
Prospects for Income and Growth?
UK Income Property Possibilities?
Areas of higher yield – Nottingham
HMO and Holiday Lets
BUT ONLY 1 SIDE OF TRIANGLE IN PLACE AT BEST
USA
Orlando
New York
USA Condo
Triangle – yield reward of 6% [finance at 7% is possible]
Price $31,200 [sold for $304k on 1 Dec 2007!!]
Net rent $ 400 [Gross Rent $900]
Yield reward [unfurnished]
Prospects for Income and Growth?
Germany
Germany
GermanyTriangle – in parts of Germany, all 3 in place
Price – 20.000 Euro
Net rent – 2.256 Eur pa
Yield reward [unfurnished] - 6.3%
Prospects for Income and Growth?
German Income Property
179,000 Euro8 Apartment BlockYield 11.1% netYield Reward 6.5%
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