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Assume that the occupier pays the market rent and the total price of the shares equals the market sale price of the property. That gives you the rate of return on investment, not counting maintenance costs. Any attempt to exceed that rate of return is doomed in the long term.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Carrie (migeru at eurotrib dot com) on Thu Apr 3rd, 2008 at 08:54:20 AM EST
[ Parent ]
Now the "market rent": and its relationship between the "Capital Rental", the "Maintenance" and the "Location Rental" (which is essentially the free ride property owners get from public expenditure on infrastructure) is where it gets interesting.

I reckon I've cracked it, and have a practical solution which would work.

And that's just the sort of project I'm working on up here in Scotland...

In fact the deadline on one (300 property) bid was two hours ago.

Fingers crossed....(it's just the start mind you)

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Apr 3rd, 2008 at 09:01:07 AM EST
[ Parent ]
Yes, but a more low-brow approach would be just to saunter over to the nearest real estate agent and ask...

For instance, the other day I saw an ad for a property with an asking price of GBP540k which claimed a yearly rental income of GBP37k (the building comprised several lodgings and commercial premises). The return rate there is 6.9%. If you tax income at the marginal rate (40%) you get a 4.1% return rate after tax. This doesn't include council tax or maintenance, but those would be added to the rent and would not accrue to the investors so they net out.

The point is that trying to extract more than, say, 5% nominal after-tax returns from property is simply not realistic. What? That's not enough for investors? Then that will depress the property price until the ratio is as they desire.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Carrie (migeru at eurotrib dot com) on Thu Apr 3rd, 2008 at 09:33:44 AM EST
[ Parent ]
Well, one of the interesting effects is that the model eliminates a lot of transaction costs, including stamp duty on sales (cos there wouldn't be any sales).

What would happen is that stamp duty would apply on purchase and sale of "Units" as on conventional shares, I think.

There are two roles for current intermediaries. An estate agent brings Occupiers together with properties, and financial service providers bring Investors in property pools together with investments, make markets etc

Btw I don't think people realise how regressive UK Stamp Duty is for the average Joe Blows with chunky mortgage loans.

If you consider the amount of actual "Equity" people have in their homes the application of Stamp Duty to the gross sale price gives rise to outrageous rates of taxation applying down the average "chain", in comparison to the net proceeds which flow, particularly in the lower levels of the market where people are struggling "up the ladder" into second or third homes etc

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Apr 3rd, 2008 at 10:31:32 AM EST
[ Parent ]

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