If you are a landlord, or thinking of becoming one, working out your rental yield is crucial to knowing how profitable your buy-to-let property is.
While keeping an eye on your investment property's capital growth is often less of a concern in the short term, knowing what is a good UK rental yield and how your property stacks up is far more pressing.
But how do you work out rental yield? Parkers has the answers...
|How To Rent Guide: Rental Yields |
Rental yields calculator
Rental yield is a percentage figure that weighs up your annual rental income against your property's purchase price, or value.
So, in order to work it out, do the following calculation:
* Take your property's value or purchase price
* Then work out its annual rental income
* Divide those two figures and multiply by 100
That will give you your percentage rental yield! And the higher the number, the better you are doing!
Here's an example:
* Annual rent: £11,000
* Property value: £200,000
£11,000 ÷ £200,000 = 0.055
0.055 x 100 = 5.5% (Gross yield)
What is a good rental yield in the UK?
This varies depending on where you have invested.
For example, rental yields in the RG2 postcode of Reading are said to be at 4% for 2018/2019 - a solid return.
However, move further north to Liverpool and landlords are said to be experiencing yields of around 7%.
The ideal scenario for landlords looking to achieve high yields is a low purchase price in a high demand, low stock area. But that's in an idea world!
How do you work out net rental yield?
Although working out your gross rental yield is a clear indicator for you as a landlord, knowing how you are faring once other costs are factored in is also a very useful metric.
This is particularly true given additional pressure on landlord costs following changes to legislation on mortgage interest tax relief and rises in stamp duty for those buying second homes.
To work out your net rental yield:
* Take your annual rental income
* Deduct all your annual costs
* Divide your net income by your property's value / purchase price
* Multiply by 100
Boosting your rental yield
Taking steps to increase your rental yield should always be proceeded by careful thought.
But there are ways to push that percentage a little higher, such as:
Raising the rent
Be careful with this one and weigh up the pros and cons carefully. While an increase in rent may look good on the balance sheet, it may also result in unhappy tenants.
If they then leave, you will be looking at increased costs to find new tenants and no guarantee they will be as good as the ones who have just departed.
Lowering the rent
Are you marketing your buy-to-let with an ambitious rental figure? If so you could be struggling to find and retain tenants.
Those void periods in between are costly and will almost certainly hit your yield where it hurts.
Consider bringing your rent in line with other similar properties in the area.
Tenants in 2019 are a demanding lot. They expect great properties with something extra - and rightly so.
Make sure your maintenance schedule is up to scratch to keep your buy-to-let in pristine condition.
And if you can make it stand out from the crowd, there's a chance a tenant will pay a premium, boosting your yield in the process.
Stick to your obligations
Don't try to pull the wool over your tenants eyes - or worse still, the powers that be.
Know your obligations and take them seriously. For instance, did you know that changes to section 21 legislation means you now have to provide a copy of the government's How To Rent guide to each tenant?
That's just one example... remember, a good landlord will result in a happy tenant, fewer void periods and steady rent to keep that yield purring.