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What Is The Meaning of a Rental Yield?
Property Investment BasicsRental yields are a way for buy-to-let investors to calculate what kind of return they will make every year in rental income.
This is represented by a percentage value of their initial investment.
Rental yield is calculated by taking the price that they bought the property for, dividing it by the annual rent and then multiplying the result by 100.
For example, if an investor bought a property for £200,000 and expected to make £800 a month from it in rent, then they would have a rental yield of 4.8%.
More About Rental Yields
A good rental yield is anywhere between 5-8%, as this gives investors a stronger annual return on their investment from rental income.
This is used to give investors a projection of how much they can expect to earn from their investment.
There are two kinds of rental yields, gross yields and NET yields. Gross yields calculate the raw data of rent compared to price, while NET yields take into consideration costs that come with managing the property, like bills or repairs.
For this reason, NET yields are preferred by investors as they give a more accurate projection of the earnings they can expect.
Rental yields are essential information for investors to know before they invest in a buy-to-let property, as otherwise, they won’t know how much of a return they will make.
With off-plan properties, you will likely see a projected estimate of the rental yield, based on the value of the property being constructed and the amount of rent you can realistically charge for it.
This projection will give you a good idea of how much you can expect to make from an off-plan property, and many such projections are guaranteed for a set time to help assure you they are accurate.
Many factors go into helping raise a rental yield to ensure a strong return on investment. Buying a property for a lower price can help to increase it, as you will be able to charge a higher comparable amount of rent.
As well as this, amenities such as furnishings, technologies or facilities in a residential development like gyms, laundrettes and car parking will allow you to charge more rent for the extra features, which will also help you to achieve a higher rental yield.
The location of the property will also play a factor. Inner-city properties will likely be able to charge more rent due to being in an in-demand location, helping to raise their rental yield.
Having a high rental yield is essential to any buy-to-let investor, as it will help to ensure you make a better return on your investment. In real terms, it will likely mean more money in your pocket every month from rental income, while meaning you earn back the money you invested at a faster rate.