It is something landlords will be considering when looking at the finances of a rental property without knowing it has a name, but what is rental yield and how can you maximise it?
The rental yield of a property is the return made on an initial investment when compared to the rental achieved. The calculation in itself is very simple, take the annual rent, divide it by the purchase price of the property and multiply by 100 to get a percentage.
Using round figures of £1500 monthly rent and a purchase price of £250,000, you will get the following:
£1500 x 12 = £18,000 (annual rent)
£18,000/£250,000 = 0.072 x 100 = 7.2%
As a general rule, anything above 7% is considered a good yield, but where is this achievable? The answer is not completely straightforward. Unless you check all of the UK yourself, the answers vary greatly when doing a simple online search. And anyway, why would you want to be advising a client about an area you’re not currently working in?!
Where to buy also shouldn’t simply be a matter of yield, there are other factors to consider when advising or making an investment in a rental property.
📈 House price growth, build equity over time rather than short term gains
⛔️ Proportion of vacant properties, to better understand demand
🏡 Percentage of properties rented, this will also give an indication of demand
🏢 Property type, some areas may be better for apartments, others family homes
🔨 Maintenance, or potential repairs needed, should also be considered
📍 Where? Even in a small town, some areas will be better for investing than others
What else do you advise your investor landlords to consider when buying a property?