Introduction
You’ve got a good idea of how much you can afford to spend and what type of property you want. Now it’s time to find a place that will meet your needs and still allow you to make the income you want. There are many factors that go into determining what the rent should be: location, size, amenities, etc.. But when it comes down to it, all these factors boil down to one thing: the yield percentage.
If you are looking to invest in property, then your rental yield is an important metric to consider.
The rental yield is the annual rent divided by the property value. It is a good indicator of how much income a property can generate compared to its value and should be used as part of your decision-making process when deciding whether or not to buy a particular property.
For example, let’s say that you are planning on buying an investment property that has an asking price of £100,000 with an estimated annual rent of £10,000 per year. Your rental yield would then be:
Rental Yield = Rent / Price
= (£10,000 / year) / (£100,000)
= 10%
There is no ‘good’ or ‘bad’ rental yield; it depends on your philosophy as an investor.
For some investors, high yields are the most important thing and this will guide their investment strategy. For others, capital appreciation or seeking out areas with strong growth potential are more important. Sometimes, a lower yield but with a secure tenant can provide a viable opportunity. It’s important to find an investment strategy that fits you and your goals.
Comparing areas with different yields can be tricky but try comparing their yields on the same property type and make sure you compare it on a like-for-like basis (2 bed flat in Clapham vs 2 bed flat in Sunderland will be very different).
Comparing areas with different yields can be tricky, but it’s important to make sure you compare yields on a like-for-like basis. A 2 bed flat in Clapham will have a much lower rental yield than a 2 bed flat in Sunderland, so make sure you use the same property type and area when comparing your options.
Remember you can also take less rent if there are long term benefits like a 3+ year lease (with break if needed), or even a tenant paying for any refurbs or works that need doing before the property could go back to market.
The reason I’m saying this is because it’s easy to fixate on what the rent is and forget about all of the other variables that go into finding a tenant, agreeing on terms and getting them moved in, and the associated costs and void periods.
The key here is to stick to your targets and don’t be bullied into something that doesn’t suit you.
It’s quite exciting when you find a property that you like, but it’s important to stick to your strategy and know that there will be other opportunities if this one doesn’t work out. Don’t be bullied into something that doesn’t suit you; if the deal doesn’t work for you, then don’t do it!
By calculating the yields and margins yourself, you will have a clear idea of where the property sits in relation to other properties.
When you’re about to start investing in properties, there are a few things that you need to know. You need to know what your target rent is and also the margin (or Yield) that you will be aiming for. If you don’t have an idea of how much rent you want to charge, then I recommend getting some advice from a professional who can help with this decision making process.
One of the most important factors when buying an investment property is finding out what kind of yield it will give us as investors.
Conclusion
I hope that this article has helped you to understand the concept of rental yield and how it can be used as a metric for comparing different properties. If you have any questions or would like help finding a property with good rental yields, please get in touch with us!
