My new investment property is now occupied, with tenants moving in earlier in August. The rent was at the high end of expectations, with a gross yield close to 6.5%. The combined yield of my properties after agency fees, regular costs and taxes is around 4%.
Property is once again my largest asset class at around 44% of total assets. The investment reduced my cash position to around 28% of total assets, much closer to my long term target of around 20%.
The only slight concern is the tenancy agreement is only for 6 months. I'm hoping this will be extended, but if not it could mean a load more agency costs on a more regular basis than i would hope for.
Also some good news with my other property. The existing tenant has just signed up for another year, with a rent increase of 4%. This is particularly good news as it means there shouldn't be any immediate need for any maintenance costs / refurbishment. In the 5 years or so of renting out this property it has only been vacant for about 5 days between tenancies.
Showing posts with label Property. Show all posts
Showing posts with label Property. Show all posts
Saturday, 29 August 2015
Monday, 29 June 2015
Property purchase complete
I've now completed the purchase of a new rental property. The cost was a lot less than my existing rental property due to its location away from big cities, but knowing the area, the property should be ideal for young families close to a local school.
I expect the net yield after costs and tax to be around 4%, which is higher than my existing property yield, although it probably doesn't have as much potential for capital appreciation.
There are a few odd jobs to complete but i hope to have it on the market with 2 weeks. I had not fully factored in the costs associated with the purchase into my annual plan, so June expenses were higher than usual.
This has helped to reduce my cash reserves to under 30% of net worth, the lowest proportion it has been for around 3 years.
I expect the net yield after costs and tax to be around 4%, which is higher than my existing property yield, although it probably doesn't have as much potential for capital appreciation.
There are a few odd jobs to complete but i hope to have it on the market with 2 weeks. I had not fully factored in the costs associated with the purchase into my annual plan, so June expenses were higher than usual.
This has helped to reduce my cash reserves to under 30% of net worth, the lowest proportion it has been for around 3 years.
Wednesday, 1 April 2015
Property investment update - offer accepted
I've mentioned a few times in the last year my plans to use some of my cash reserves to add a new property investment to my assets.
This is partly due to a positive experience with my existing property investment, partly my reluctance to materially increase my stock market investments, and partly due to my desire to earn a greater yield than that available on cash. My cash reserves have also been well above my target for some time.
Following some on and off research starting last summer i've finally got around to putting in an offer on a property, which has just been accepted.
In terms of numbers, it isn't huge, but does yield well above my existing property with a potential gross yield over 6% and a net yield after taxes & costs over 4%. It looks to be in excellent condition so it should be possible to get it onto the rental market quickly after completion.
Away from the numbers, i found it refreshingly easy & emotionless bidding for a property purely as an investment rather than somewhere i would be living. Hopefully the legal side will run as smoothly over the coming weeks.
This is partly due to a positive experience with my existing property investment, partly my reluctance to materially increase my stock market investments, and partly due to my desire to earn a greater yield than that available on cash. My cash reserves have also been well above my target for some time.
Following some on and off research starting last summer i've finally got around to putting in an offer on a property, which has just been accepted.
In terms of numbers, it isn't huge, but does yield well above my existing property with a potential gross yield over 6% and a net yield after taxes & costs over 4%. It looks to be in excellent condition so it should be possible to get it onto the rental market quickly after completion.
Away from the numbers, i found it refreshingly easy & emotionless bidding for a property purely as an investment rather than somewhere i would be living. Hopefully the legal side will run as smoothly over the coming weeks.
Thursday, 30 October 2014
Property value update
I periodically review the value i record my investment property against the local market using valuation websites, local properties on the market and recent local sales.
According to all these indicators, local valuations are still increasing, so i've added an extra 5% to my recorded valuation. Despite the latest increase, i'm still holding it at 10% below the market as i remain somewhat skeptical about how sustainable the recent price increases can be.
Property remains by far and away my most successful asset class, generating high yield along with material capital gains.
According to all these indicators, local valuations are still increasing, so i've added an extra 5% to my recorded valuation. Despite the latest increase, i'm still holding it at 10% below the market as i remain somewhat skeptical about how sustainable the recent price increases can be.
Property remains by far and away my most successful asset class, generating high yield along with material capital gains.
Sunday, 29 June 2014
Property: to buy, to sell or to hold...
I've been mulling over a number of decisions about property investments recently.
Firstly, the tenancy on my existing rental property is up for renewal so i took the opportunity to check the current sale value, which was materially higher than the value i'm currently holding the property at in my accounts. I was very tempted to sell & lock in the capital gain, especially given the steep rise in local valuations and the potential for these to fall back. However, i decided to hold on to it and continue to rent it out for another year, primarily as there are no obvious alternatives for investing the cash this would release at a comparable yield. I'm already struggling to manage down my excess cash balances so don't want to compound the issue further.
In addition to this i'm also looking at additional smaller property investments in a different location that has not seen similar price rises in recent years, and as a result offers more attractive yields. My current cash holdings are around 37% and whilst the overall cash balance yields just over 2%, incremental cash is earning closer to 1%. I'd therefore like to start managing this balance down, and the property investments i'm looking at could yield around 5%.
Given the high yield and lower valuations, i did also consider selling my existing property and buying on a much larger scale in the new location. However, for now this isn't attractive as (a) there's a chance i may return to the existing property location in the future so benefit from hedging against price movements there, and (b) i don't have experience of the market in the new location so will start small and see how it goes.
Firstly, the tenancy on my existing rental property is up for renewal so i took the opportunity to check the current sale value, which was materially higher than the value i'm currently holding the property at in my accounts. I was very tempted to sell & lock in the capital gain, especially given the steep rise in local valuations and the potential for these to fall back. However, i decided to hold on to it and continue to rent it out for another year, primarily as there are no obvious alternatives for investing the cash this would release at a comparable yield. I'm already struggling to manage down my excess cash balances so don't want to compound the issue further.
In addition to this i'm also looking at additional smaller property investments in a different location that has not seen similar price rises in recent years, and as a result offers more attractive yields. My current cash holdings are around 37% and whilst the overall cash balance yields just over 2%, incremental cash is earning closer to 1%. I'd therefore like to start managing this balance down, and the property investments i'm looking at could yield around 5%.
Given the high yield and lower valuations, i did also consider selling my existing property and buying on a much larger scale in the new location. However, for now this isn't attractive as (a) there's a chance i may return to the existing property location in the future so benefit from hedging against price movements there, and (b) i don't have experience of the market in the new location so will start small and see how it goes.
Wednesday, 2 April 2014
Property valuation
I was shocked again today to see how quickly some UK property prices are rising, particularly around the London area.
Whilst its only around 3 months since i last reviewed and increased the value i record my rental property in my personal finances, checking local valuations again today showed another material increase. The valuations appear to be genuine too, with a neighbouring (and almost identical) property just being sold for around 18% above the value i was holding mine at.
I have therefore decided to add an extra 5% to my property value in my assets and net worth calculations. While this still keeps it around 10% below 'the market', it does reflect the recent increases and allows a margin of error for some fluctuations going forward.
I am also keeping a close eye on potential capital gains tax changes which may determine whether i continue to hold or sell this property. Whilst it is tempting to sell now and realise a large tax free gain, my cash balances are already too large a proportion of total assets and the rental yield is double what i can earn on cash.
Whilst its only around 3 months since i last reviewed and increased the value i record my rental property in my personal finances, checking local valuations again today showed another material increase. The valuations appear to be genuine too, with a neighbouring (and almost identical) property just being sold for around 18% above the value i was holding mine at.
I have therefore decided to add an extra 5% to my property value in my assets and net worth calculations. While this still keeps it around 10% below 'the market', it does reflect the recent increases and allows a margin of error for some fluctuations going forward.
I am also keeping a close eye on potential capital gains tax changes which may determine whether i continue to hold or sell this property. Whilst it is tempting to sell now and realise a large tax free gain, my cash balances are already too large a proportion of total assets and the rental yield is double what i can earn on cash.
Tuesday, 1 October 2013
New tenant update
My new tenant moved in towards the end of September. As the outgoing tenant asked to leave before the end of the lease, they agreed to pay rent up to the new tenant moving in - in the end there was only a couple of days gap so this wasn't a big issue.
On the plus side, the new tenant is paying around 6% higher rent. On the downside, there were a number of costs associated with the start of a new lease.
One thing noticeable this time is that wear & tear on the furnishings is becoming much more apparent. I think i'll have to budget for some repairs & replacements at the end of this new tenancy in order to maintain a rental income towards the top end of the market range.
On the plus side, the new tenant is paying around 6% higher rent. On the downside, there were a number of costs associated with the start of a new lease.
One thing noticeable this time is that wear & tear on the furnishings is becoming much more apparent. I think i'll have to budget for some repairs & replacements at the end of this new tenancy in order to maintain a rental income towards the top end of the market range.
Thursday, 29 August 2013
Some tenant turnover
I recently learned that my tenant is looking to vacate my property early to relocate with work.
Fortunately i have a good property agent that has agreed with the leaving tenant they will be liable for rent and bills up to the date a new tenant moves in, thus ensuring no vacancy losses.
I will however have to pay for the usual items with new tenancy agreements, but these should not be material and would have been incurred at the end of the tenancy anyway - ie. more of an acceleration of costs.
The good news is that after re-marketing the property for one day, a new tenant may have already been found that is prepared to pay around 6% higher rent. I'll see how this progresses over the next couple of weeks.
The benefits of a good property agent cannot be underestimated!
Fortunately i have a good property agent that has agreed with the leaving tenant they will be liable for rent and bills up to the date a new tenant moves in, thus ensuring no vacancy losses.
I will however have to pay for the usual items with new tenancy agreements, but these should not be material and would have been incurred at the end of the tenancy anyway - ie. more of an acceleration of costs.
The good news is that after re-marketing the property for one day, a new tenant may have already been found that is prepared to pay around 6% higher rent. I'll see how this progresses over the next couple of weeks.
The benefits of a good property agent cannot be underestimated!
Monday, 8 July 2013
Property value update
I've recently noticed the valuation of my rental property has increased a lot since the last time i looked.
As a recap, i periodically update the value of my rental property in my net worth calculation, based on a conservative interpretation of a local valuations / sales. I've decided to include this at market value in my net worth and forecasting by nature of the property serving more as an income generating investment rather than a primary residence.
The last update was in August 2012, and since then, the market value seems to have increased between 5-10%.
As such, i'll be increasing the value in my records by 4% this month. I've chosen to use a slightly lagging value with infrequent updates as (a) i prefer not to make lots of up & down changes and instead want to slowly reflect a longer term trend, and (b) i have no immediate plans to sell so the exact monthly value is less of a concern.
As a recap, i periodically update the value of my rental property in my net worth calculation, based on a conservative interpretation of a local valuations / sales. I've decided to include this at market value in my net worth and forecasting by nature of the property serving more as an income generating investment rather than a primary residence.
The last update was in August 2012, and since then, the market value seems to have increased between 5-10%.
As such, i'll be increasing the value in my records by 4% this month. I've chosen to use a slightly lagging value with infrequent updates as (a) i prefer not to make lots of up & down changes and instead want to slowly reflect a longer term trend, and (b) i have no immediate plans to sell so the exact monthly value is less of a concern.
Wednesday, 6 February 2013
Tenancy renewal
Today I received the welcome news that my current tenant would like to continue renting my property for another year.
I agreed to maintain the rent at the current level, given the market is fairly flat and the rent is already a good level for the area. The current tenant has been very reliable with no issues arising in the last year.
I'm a strong believer in the value of retaining reliable & trustworthy tenants, and will happily choose to sacrifice a rental increase to keep a good tenant and avoid periods of vacancy & the inherent risks in finding someone new. Of course I would pursue a rent increase if the market rate had clearly increased.
I always think that just 1 week of vacancy equates to around 2% of annual rent, so i'm probably likely to make a higher return in having zero vacancy when the market is fairly flat.
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