Investing in real estate can be a lucrative business, but part of the secrets to its success is your ability to calculate rental yield. It’s a crucial factor that should be taken into account no matter the number of properties under your belt, which is why understanding the basics before you seal the deal matters.
By definition, a rental yield describes the property investor’s return through rentals. It’s basically a percentage figure that enables investors to stay on top of your financial stability, which you can determine by dividing the yearly income total by the amount invested in the property.
Of course, the calculations vary according to the two types of rental yield:
● Gross Yield - this refers to the total rental income and property value.
● Net Yield - this is calculated by involving all the expenses, which may include your insurance, agent fees, maintenance and the cost of any finance.
The results can help you track whether you have more room in your budget for contingencies and expenditures. Breaking even in your calculations can spell trouble for your business as it means you are not making any money while falling short is even more alarming as it means you’re losing more than earning.
Investors can also use the rental yield to compare properties.
There is no set number for a good rental yield, but 3-5% is generally accepted to be the average rental yield in the UK, so anything above that is considered a good rental yield. High rental yields over 8% can be achieved with properties that are undervalued, while a low rental yield under 4% could mean that the property is overpriced.
This ensures you have enough cash flow so that you can cover any unforeseen expenses as well as bringing in a steady income from your investment. The house prices in the North East are some of the most affordable in the country, combined with high demand for good quality rental property, means that they are able to achieve some of the highest yields on rental properties in the UK. We are pleased to be able to bring these properties to you as 100% hands-off investments, refurbished and ReadyLet.
There are various ways to achieve successful property growth as an investor, but whether you’re a beginner or veteran in the field, a good rental yield will always be a crucial part of the equation. Understanding how to calculate rental yields and what makes a good percentage can become a competitive advantage since it helps you identify your potential profits and losses. This makes it easier to allocate your investments wisely.