Rental Yield: Frequently Asked Questions (FAQ’s)
If you are thinking about becoming a landlord or looking to increase your property portfolio, looking at your rental yield and how to calculate the return on your properties is essential in maximising the return on your investment.
This handy guide will explain what rental yield is, how you calculate it, what constitutes a good rental yield – and how you can drive it up as far as possible.
- Rental yield – the return on a property through rent.
- Capital growth – an increase in the value of an asset or investment over time.
- Gross rental yield – the annual income of a property as a percentage of the property’s value or purchase price.
What is rental yield?
Rental yield is a measure of the return you as a property investor / landlord is likely to achieve on a property through rent – it’s a good indicator of how much cash flow you can expect to receive.
How do you calculate the gross rental yield?
Calculate the rental yield by taking the annual rental income on a property and dividing it by the total amount that has been invested into the property and multiplying this figure by 100, which will then provide you with a percentage figure.
For example, if you bought a buy-to-let property for £280,000 and receive £1,050 per calendar month in rent, which gives you an annual rental income of £12,600 (12 x £1,050), the gross rental yield will be:
(£12,600 / £280,000) x 100 = 4.5%
It’s important to note, while gross rental yield is a simple calculation it doesn’t take into account any costs associated with the upkeep and maintenance of the property, such as mortgage payments, insurance and any unexpected expenses like a new boiler for example. External factors could also potentially affect your rental yield including, property prices, interest rates, capital appreciation, demand growth and a fluctuating housing market.
Why does rental yield matter?
Making sure the property pays for itself month-by-month as a minimum and that your investment is sustainable on a long-term basis is key, otherwise you’ll lose money.
High rental yields will suggest whether the property is a good investment or not and whether you would be able to cover the costs of any mortgages, management fees from the rent, plus hopefully seeing some return on your investment. Put simply, if your income is less than your expenditure then you lose money, and no-one wants to be doing that.
What is a good rental yield?
In our experience a good rental yield for a buy-to-let property is anything over 5%. Anything less than that and there may not be enough cash flow to cover your outgoings, maintenance and upkeep of the property.
How can I maximise rental yield?
Naturally, every investor wants to maximise their property’s yield, which means keeping costs under control. From reviewing the local rental market to trimming your outgoings and finding the right tenants, from our experience here are a few extra ways you can get more out of your investment.
- Rent reviews – review your rent on a regular basis, if your rent is set lower than the market rate, you may wish to increase it. Speak to our Lettings team as we can benchmark it against the market.
- Long-term tenants – never under estimate the worth of reliable long-term tenants, they will take care of your buy-to-let property and provide a regular and stable income.
- Update the property – make sure your property is well maintained as this will ensure tenants stay for longer periods, plus the condition of the property will reflect the rent you can charge.
- Avoid empty periods – we have a large portfolio so we can find the right tenant for your property quickly, ensuring you avoid any empty periods – after all the mortgage still needs to be paid, whether it’s occupied or not.
When choosing a buy-to-let property, rental yield, good location, good capital growth and strong tenant demand are just a few of the factors to consider. Using our experience and knowledge of the local housing market, we can help advise on what is currently occurring, so you are in the best position to make an informed choice that is right for you.
For further advice and information on buy-to-let investment, please contact your local team of Lettings experts or call 01903 213 111 for Worthing or 01903 756 688 for Lancing and their surrounding areas to speak with one of our friendly team.
Content accurate at time of publishing.