Speaking earlier this month at a conference for property professionals in Wales, I said something that quite possibly undermined the entire estate-agent love-fest.

“Since rental yields are so low nowadays, it’s probably wiser to slam your money into the building society,” I chirped happily. Various people in the audience goggled at me; others nodded their heads sagely.

That was before last weekend, of course, and those dramatic scenes of people queuing to withdraw their money from Northern Rock. But, leaving aside the ticklish matter of how solid our other banks and building societies are, it is certainly a valid topic for debate.

My two flats in east London, home to two happy tenants paying an average rent for the capital, give Mr Millard and myself an annual yield of about 4.8%. (To work out your yield, take the annual rental income and divide it by the current value of your property.)

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Is 4.8% a good return by today’s standards? Put like that, not really. If I sold the flats and deposited the money, I could earn at least 6% if I wanted to be able to get my hands on it instantly (bank runs permitting), or 7% if I was prepared to tie it up for longer. No contest, it would seem - and that is before you factor in gremlins such as rental voids or nasty redecorating costs.

I’m not going to sell, though. I have a rather large mortgage against both flats, so half the proceeds would go to the dear old Clydesdale Bank. Then there are all those ferocious exit and entry costs – not just agents’ fees, but voids incurred during the selling process, and perhaps redemption penalties for paying off the mortgage so quickly. In addition, I would have to pay capital-gains tax on any profits.

And, where would I be if the market, which is admittedly looking a bit peaky at the moment, picked up in a few years’ time? Twiddling my thumbs while house prices go through the roof.

No wonder so many of us are holding on to our portfolios and smiling tightly as our yields plummet to 4% or worse, while mortgage rates for those not fortunate enough to have locked themselves into a low fixed deal could be 6%.

The managing agent Robin Curtis, director of Windmill Residential in Ealing, makes a living running after other people’s flats. He also has a portfolio of 15 buytolets in west London. Originally, his yields were about 6%, but in the past year or so, they have dipped to about 4.8%. So, is he unhappy? Not a bit of it. The rents he receives have actually gone up – it is just that they haven’t gone up as fast as the value of his portfolio. Hence the falling yields.

Is he tempted to sell? “If I own something where the capital value has shot up, and the rent hasn’t gone up accordingly, then yes, I would consider selling it and reinvesting the money in something with a better yield,” he says.

“Actually, I have sold a few that were in that situation, and reinvested in cheaper stock with higher rental potential. But if you do that too much, you have not only tax but the transaction costs to factor in. It’s a constant process.

“If you rent your property by the room, you can get higher yields. But the flip side is that you are dealing with tenants who come and go individually, so it’s much more work.”

Would Curtis get out of the buy-to-let market altogether, and put his money into something like the stock market? “No. I don’t know anything about the stock market, and I could lose it all if I’m not careful.”

It appears to be landlords with chic urban flats who are suffering most from falling yields, rather than those who have bought cheaper, more modest dwellings. Marcus Locke, for example, has 58 flats in unglamorous south London, and says his yields are still 8%-9%.

Blimey. That sounds rather difficult to believe, but he gives me his figures and they come in at about that level.

How does he do it? “Because I’m clever!” Locke says breezily. “Most of my flats are ex-local authority, which are cheaper to buy. Straightaway, that gives you a better yield.

“Then some of my flats I convert from three-beds to four-beds, which gives me a higher rental return. And, this year, I’ve been putting my rents up by 10%-15%.”

He asks me how high my yields are. Reluctantly, I come clean. “Only 4.8%? You can’t make it work at those levels!”

Yes, well. Understandably, with returns nearly double that, Locke is not about to sell up and reinvest elsewhere. “No chance. Never sell,” he says. “It’s the golden rule. What will these properties be worth in 20 years’ time?”

Lahrie Mohammed, a professional landlord with 150 properties in and around his base in Walthamstow, northeast London, thinks that the low yield is a warning to wannabes to stay out of the market. “Mine were as low as 4%, but have picked up a little bit to reach 6%-7% because my rents have gone up.”

Is he still buying? “Yes, but only to refurbish and sell straightaway. For new landlords, there is no incentive to invest in the buy-to-let market. And the ones who were flooding the rental market have, by and large, left.” Hello, you lot still out there – we’re in there for the long haul, right?

buytolet@sunday-times.co.uk

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