If you are thinking about investing in property, not only do you have to think about the management and logistical aspects of the trade, but also the financial ones. With anything, you will want to see good returns to ensure that something you bought is indeed an investment. This is where calculating rental yield comes into play.
What Is Rental Yield?
A property investor calculates rental yield to discover the returns they are likely to achieve on a property through rent. It is in percentage figures and uses the formula of taking the yearly rental income and dividing it by the total amount invested in the said property. The value given is then multiplied by 100 to get the percentage of returns out of 100 per cent.
What Is A Good Rental Yield?
By traditional standards, good rental yield for your property is seven per cent or more. Anything below seven may not have enough cash flow in the property to cover the running costs and mortgage payments as well as any unforeseen problems.
When you are on the search to discover the best area to invest in, you need to be cautious about finding a location that has rental returns that will yield you the best results to ensure you are not losing money on a poor choice investment.
You may be attracted to areas that have an exceptionally high rental demand. While you may think these areas are good investments to make and can look like a good deal, some of these properties can be stamped with low rental yields such as only five per cent. The problem here is that management agency fees in high popularity areas are extremely expensive, and sometimes covering baseline and mortgage costs is already a challenge. However, investors focused on capital growth with low gearing mortgages dealing with city-center locations are exceptions to this rule, as they prioritize potential growth over yield. In areas of the UK such as the North East, there is an opportunity to have both a high rental yield as well as capital growth as property prices there are expected to increase by 20% in the next 5 years.
Good Buy To Let Investments
As a property investor there is good money to be made if you invest in buy to let, but it can take time, effort, and a fair amount of research to ensure you get the best results. When purchasing a buy to let property it can be comforting knowing you’ve got an investment in bricks and mortar. It goes without saying that the UK housing market has increased hugely in value over the past 25 years or so, even taking into account the downturn after the financial crisis of 2008 and if you invest in a buy to let properties you have the opportunity to benefit from any continued growth.
The lack of housebuilding over the past decade means that not only are house prices rising but so is the average rents. A good rental return is extremely important when selecting good buy to let properties, but it doesn’t stop there. There are other factors that you will need to consider;
Location: Ensure that your buy to let property is in a good investment avoid area where there is a risk of long void periods. Buying the right area at the right time will make the most out of any expected returns.
Property: Ensure any maintenance costs will be kept to a minimum and make sure that these costs are factored these into your spending,
Tenant: Finding and keeping a tenant that pays the rent on time can prove a headache, so it may be wise to use a management agency who will carry out the necessary checks on their financial history, references and employment status and will follow up with the tenant to that they’ll pay the rent on time.
If you are looking for high yielding property in the North East look no further than the services of Ready Let who have used their experience to do all the work for you. Their properties are refurbished to the best standard in the area and tenanted and managed for you on an ongoing basis offering you a way to invest so that you are getting high yield returns whilst your money is safe in your property.