Calculating and Boosting Rental Yields
The Rental Yield is how a property investor describes the annual rental income, relative to the purchase price of a property - expressed as a percentage.
It’s a particularly useful measure when comparing different properties within your portfolio, plus it can be a useful target for landlords when considering future investments.
Gross versus Net Yield
There are two ways of calculating yield. Gross yield is a simple calculation which looks at the value of the property when it was purchased versus the rent usually received.
So, for example a property was bought for £250,000, and the rent is £1,000 per month then the yield is 4.8%; that’s because £12,000 rental income divided by £250,000 expressed as a percentage is 4.8.
However, this rather rudimentary calculation doesn’t consider the other costs which a landlord may have to pay out.
Therefore, calculating the true, or net rental yield will include incorporating the additional costs a landlord has to pay.
These costs include fixed and known costs such as mortgage repayments, leasehold costs and insurance premiums.
Meanwhile, there are some less-regular costs to factor in, such as any void periods where no rent is being received, together with cost of finding new tenants and also refreshing the home between lets.
Incorporating these costs into your calculations will help you understand the true yield.
Here's our top 5 tips for boosting your rental yield.
Investing in property requires a lot of research, hard work, and dedication. With each new purchase you will become more experienced and better equipped for the next investment... Nevertheless, it is always important to treat every new property as a business decision by carefully studying each potential investment as well as negotiating where possible in order to maximise your return.
Make your property attractive to tenants
One of the best ways to maximise your return is to minimise the number of times you have to find new tenants – marketing costs, void periods and greater wear and tear can impact the overall yield. So, treating tenants like valued customers and making sure they have an exceptional experience when moving in and living at the property will help ensure they stay for a longer period and treat your investment like their home.
Invest in up-and-coming locations.
Another way to achieve the best yields is to buy property in up and coming towns and cities - where there is planned regeneration and government investment. Examples include redevelopment of city centres, government business initiatives and infrastructure such as HS2 and Crossrail. Areas such as these provide the prospect of increased capital growth and greater rental values for the future.
Review your outgoings
The first place to start is to look at your fixed costs. For example, some landlords are taking advantage of the low interest rates and establishing whether there are better mortgage deals available.
Reviewing your outgoings can make a big difference to what you have coming in so try and shop around each time your mortgage or insurance products are coming up for renewal.
Carefully selecting tenants
Taking some careful steps with your choice of tenant can help reduce the one-off costs which are often associated with changing tenants.
Ensuring a tenant can afford their rent should help avoid unpaid rent. Plus, a tenant who has a positive reference from their current or a previous landlord will undoubtedly want to protect their personal record as a tenant and may be more likely to take care of any furniture and furnishings you’ve put in the property.
It’s also a good idea to identify who your potential tenants are. For example, if your property is a one-bedroom purpose built flat in a city centre location your tenant profile will be a single professional or couple. If your property is a house in a residential area close to good schools, your tenant profile will be a family with children and possibly pets. By marketing to and catering for the right demographic, this will ultimately help you to get better value from your property.
The haart Investor Services Team are here to help customers obtain more information about how to maximise their investments in the current property market for more information contact Kate Hurles on 079 6012 0267 or email Investor.firstname.lastname@example.org
If you are looking for a Buy to Let mortgage get in touch with Just Mortgages to talk though your options with one of our advisors.