As a landlord, work is never finished. So, you have got new tenants in. All the documents are sorted, however, you need to work out the yield on your rental property. This usually applies to landlords that don’t use an agency.
But, how do you work it out? Is it easy to sort? In this blog we will be looking around everything you need to know about yield on your rental property.
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What is Rental Yield?
To start, what is rental yield? Well, put simply, it is the return that a landlord would receive from the rent of the property. This figure is a percentage figure that needs to be calculated on the yearly rental income.
Why does Rental Yield matter?
Readers may think that understanding the yield may not be necessary. Although, it is actually paramount to making sure your property investment is successful.
If your income was to fall short of any of your expenditures then you would automatically end up losing money. You don’t want to just be breaking even either. If you are just breaking even, then it means you won’t be making any profit. This can also be a problem if your property needs repairs such as a broken boiler.
The word most landlords use about the key to a successful rental property is ‘Long-term Sustainability’.
Finding Out The Correct Rental Yield for your property
If you are renting a property off of your own back, the best way to work out the rental yield on a property is to firstly do a search. Online, there are so many different rental yield calculators. They can help you work out the calculation on your property.
If you decide to use the online tool, we suggest Property Investments UK or John Charcol. Both have calculators and discuss everything you need to know about rental yield.
How to work out Rental Yield
If you are wanting work it out for yourself then it couldn’t be easier, the calculation is very straight forward.
Annual Rental Income ÷ The Value of The Property x 100
Please bare in mind, that if you are working this calculation out on a property you don’t yet own, then this can be difficult. You may not know how much you will be able to charge and the how expensive your expenses will be. If this is your current case, then use estimated figures to work this out. But also remember that this won’t be correct once you purchase the property.
Rental Yield Calculation in Action
So, if your yearly rental income is £6,000 and the you spent £70,000 buying the property plus £5,000 in other expenses; Then the calculation would look like so:
£6,000 ÷ (£70,000 + £5,000) x 100 = 8
Thus, giving the property 8% of rental yield.
What is considered a good Rental Yield?
Looking at previous landlords, a ‘good’ rental yield is classed as 7% or above. Anything that is under 7% can be concerning as it can show that the property may have cash-flow problems and may not be able to cover all its outgoings. Again, if your property has a fault, then it may be a struggle to cover the costs.
I started writing for PPO back in August 2019. I particularly enjoy writing about new housing developments and upcoming property events.