hazellend
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Post by hazellend on Jan 6, 2016 23:19:26 GMT
They prob. calculate yield based on cash invested rather than amount paid for the property? If the cash invested amount is lower, the yield looks better so it seems like a better deal. This is my reworking of their illustration in the FAQ. It seems to be so much against lenders interests I'm starting to doubt the whole thing. I've emailed them. (Of course I'm quite probably wrong)t They do calculate the yield on the cash invested. Perhaps they should show the the yield on the cash invested value and yield on current property value seperately. I have to say the returns so far have been very good (capital gains + net yield on invested cash). Because of current high prices rental yields are always going to be a bit low unless you go with lower end property. I calculate gross yield for the market drayton property at 6.67% (56,100 annual rent / £840,000 property cost ) which seems okay to me? Can anybody explain how come stamp duty never seems to be more than 1%?
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Post by Financial Thing on Jan 6, 2016 23:45:08 GMT
This is my reworking of their illustration in the FAQ. It seems to be so much against lenders interests I'm starting to doubt the whole thing. I've emailed them. (Of course I'm quite probably wrong)t They do calculate the yield on the cash invested. Perhaps they should show the the yield on the cash invested value and yield on current property value seperately. I have to say the returns so far have been very good (capital gains + net yield on invested cash). Because of current high prices rental yields are always going to be a bit low unless you go with lower end property. I calculate gross yield for the market drayton property at 6.67% (56,100 annual rent / £840,000 property cost ) which seems okay to me? Can anybody explain how come stamp duty never seems to be more than 1%? The property cost isn't $840k, it's £884,000.
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shimself
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Post by shimself on Jan 6, 2016 23:54:32 GMT
This is my reworking of their illustration in the FAQ. It seems to be so much against lenders interests I'm starting to doubt the whole thing. I've emailed them. (Of course I'm quite probably wrong) The purchase price is £840k + fees The faq on the site has a fully worked example based on a 500K property with a 250K mortgage, it was that I reworked.
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Post by highlandtiger on Jan 7, 2016 9:15:41 GMT
They prob. calculate yield based on cash invested rather than amount paid for the property? If the cash invested amount is lower, the yield looks better so it seems like a better deal. This is my reworking of their illustration in the FAQ. It seems to be so much against lenders interests I'm starting to doubt the whole thing. I've emailed them. (Of course I'm quite probably wrong) Yes you are wrong. It took me a little while to get my head around the mathematics of "gearing" properties as well, when they were first proposed , so I wouldn't worry too much. Your reworking has several errors in it. This is the correct illustration using the figures on this property
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shimself
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Post by shimself on Jan 7, 2016 9:38:43 GMT
Your reworking has several errors in it. This is the correct illustration using the figures on this property You haven't shown the interest costs on the mortgage say 5 years at 4% of 420K = 84K
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ben
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Post by ben on Jan 7, 2016 9:42:14 GMT
From my reading they have already got the property so I do not understand why they do not put it all out then get the mortgage on the remaining as I am sure this one would pretty much fully go without the need for a mortgage
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shimself
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Post by shimself on Jan 7, 2016 10:01:56 GMT
From my reading they have already got the property so I do not understand why they do not put it all out then get the mortgage on the remaining as I am sure this one would pretty much fully go without the need for a mortgage Until the last budget thingy it did make sense for private individuals as they could offset mortgage interest against tax (buy to let) - PP have said they will explain the thinking to me later today (or maybe they will post on this forum)
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Post by highlandtiger on Jan 7, 2016 10:43:29 GMT
Your reworking has several errors in it. This is the correct illustration using the figures on this property You haven't shown the interest costs on the mortgage say 5 years at 4% of 420K = 84K You don't need to show the interest costs, these have already been included in the full funding amount, and any future possible increases, will be paid from rents. The rental yield has been calculated to include all costs, (including mortgage payments), and is shown as a net amount. Which is what any purchaser of this property will finally receive. At the current level of rent, Gross Rental Yield would be 6.68% and the forecast Dividend Yield 4.44% (fully accounting for and after mortgage interest payments, purchase costs, furnishings, remedial cosmetic works, forecast maintenance, annual voids, corporate taxation and all fees).
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shimself
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Post by shimself on Jan 7, 2016 11:46:11 GMT
You haven't shown the interest costs on the mortgage say 5 years at 4% of 420K = 84K You don't need to show the interest costs, these have already been included in the full funding amount, and any future possible increases, will be paid from rents. The rental yield has been calculated to include all costs, (including mortgage payments), and is shown as a net amount. Which is what any purchaser of this property will finally receive. At the current level of rent, Gross Rental Yield would be 6.68% and the forecast Dividend Yield 4.44% (fully accounting for and after mortgage interest payments, purchase costs, furnishings, remedial cosmetic works, forecast maintenance, annual voids, corporate taxation and all fees).OK thanks I get your point - BUT still there is something like 84K of cost incurred which would not be incurred if the project was fully funded. Or put another way the dividend yield would be a bit less than 2% better. Unless there is some tax absurdity (always possible) i t still makes no sense to me to borrow money when what I am trying to do is lend it out.
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Post by highlandtiger on Jan 7, 2016 12:35:00 GMT
You don't need to show the interest costs, these have already been included in the full funding amount, and any future possible increases, will be paid from rents. The rental yield has been calculated to include all costs, (including mortgage payments), and is shown as a net amount. Which is what any purchaser of this property will finally receive. At the current level of rent, Gross Rental Yield would be 6.68% and the forecast Dividend Yield 4.44% (fully accounting for and after mortgage interest payments, purchase costs, furnishings, remedial cosmetic works, forecast maintenance, annual voids, corporate taxation and all fees). OK thanks I get your point - BUT still there is something like 84K of cost incurred which would not be incurred if the project was fully funded. Or put another way the dividend yield would be a bit less than 2% better. Unless there is some tax absurdity (always possible) i t still makes no sense to me to borrow money when what I am trying to do is lend it out. This should explain it, regarding tax, remembering of course that each property is held as a separate SPV. Gearing amplifies the impact of property price movements, meaning that investors' returns outperform the market if prices rise, and underperform it if they fall. See the illustrative example below, in the section titled 'How does leverage impact total returns?' Debt incurs a monthly interest charge which has a priority over dividend payments to investors. Should actual Gross Rent be lower than forecast for a particular month, the Dividend Yield would be relatively lower than if the property was unleveraged. It is worth mentioning that Dividend Yield is not always adversely impacted by debt. In some instances, Dividend Yield can be enhanced by debt. Two factors that can lead to this happening are low interest rates for the debt and the corporation tax benefit that comes with paying interest. The tax benefit of interest payments comes because interest payments are tax deductible: a benefit that flows through to Property Partner investors. For example, for every £1 of interest, £0.20 is offset against corporation tax (note corporation tax rates are subject to change).Which means, as far as I understand it, whilst Interest payments are being paid, they are tax deductible, and as such 20% cheaper than indicated.
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shimself
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Post by shimself on Jan 7, 2016 12:42:55 GMT
Which means that instead of paying 4% we are paying 3.2%. (this is why I said a bit less than 2%). I wondered if there was something fancier.
The illustration is said to show the effect on total returns, but actually only shows the effect on what they call capital return, and ignores the effect on dividends. The effect on total return is much closer to my illustration
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Post by highlandtiger on Jan 7, 2016 18:48:26 GMT
Simple maths, if we assume over 5 years property increases by 20%
Roughly, if there is no gearing/ mortgage, you would get an extra 2% per year thanks to an increased dividend yield, total of 5 x 2% = 10%. Add that to the 20% capital increase it means over 5 years you get an increase of 30% on your money
However with a mortgage of 50%, the capital increase would be 40%.
Which means any investor would get around 10% more back on their investment, through gearing, than through a normal buy outright.
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shimself
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Post by shimself on Jan 7, 2016 19:51:56 GMT
<abbr> highlandtigerRather than make fools of ourselves in public I have PMd you </abbr>
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shimself
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Post by shimself on Jan 8, 2016 21:09:49 GMT
I use Property Partner, and would favour a sub board. Just to point out it should be on the Equities section same model-ish as THC with SPVs
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hazellend
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Post by hazellend on Jan 9, 2016 8:31:58 GMT
Which means that instead of paying 4% we are paying 3.2%. (this is why I said a bit less than 2%). I wondered if there was something fancier. The illustration is said to show the effect on total returns, but actually only shows the effect on what they call capital return, and ignores the effect on dividends. The effect on total return is much closer to my illustration It looks like a solid investment to me. Are you investing in this one?
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