Are you buying an investment property? If so, then this will be of interest to you.
When you are considering venturing into the world of buy-to-let, there are so many important factors to consider. But the number one thing on your mind is likely to be – ‘is this a good investment for me?’ and ‘what will the return be?
What Is Rental Yield?
Rental yield is the return a property investor is likely to achieve on a property through rent. It is a percentage figure, calculated by taking the annual rental income of a property and dividing it by the total amount that has been invested in that property. There are a number of different methods by which investors work out rental yield for an investment property. The simplest way is to take the yearly rental income and divide that by the purchase price + costs and then multiply this number by 100, to get a percentage.
For Example:-
If we take a buy to let property that can be let at £1000 per month, this will give an annual rental income of £12,000.
Let's say that the property was bought for £300,000 and needed a further £5,000 spent on refurbishments.
In this example, the calculation for rental return would look like this:-
£12,000 ÷ (£300,000 + £5,000) x 100 = 3.9 - giving the property in question a rental yield of 3.9%.
This is a good measure of a property's potential rental return but of course, it is not the be-all-and-end-all of your calculation. If, for instance, you are buying your property with a mortgage then you will need to take these costs into account when you are calculating your returns.
When it comes to investing in property, achieving a good rental return is of paramount importance, but there are of course other factors to take into consideration. These include tenant demand, capital growth and your exit strategy.
For example, an area that produces the highest rental yield may not necessarily attract the best quality of tenant, which could potentially lead to additional wear and tear on the property, rent payment issues and void periods. Or, for example, a leasehold property which may produce a more attractive rental yield, may not necessarily achieve the same rate of capital growth as a freehold investment. The trick is to find a happy medium and taking the advice of an expert who knows the local market, is an important step in the right direction.
At Gibson Honey, our buy-to-let experts have a wealth of experience in both the sales and lettings markets and have been advising investment landlord’s on all aspects of the process for many years. We would be delighted to help you on your journey, so please do get in touch to find out how we can help.
01895 625999 laura@gibsonhoney.co.uk