29 01 2015

This year could see one of the greatest ever surges in the thriving buy to let investment market, as more and more people are viewing property as a viable way to provide financial security in retirement.

Alejandra Garcia who owns the Belvoir office on 8 Albion Street in Hanley, Stoke-on-Trent says: “By investing in property, pension savers can not only avoid significant fund fees or commissions but, by making all the right decisions, they can secure income and growth from tangible ’bricks and mortar’ assets over the longer term.

Rental yields come in two forms – gross and net – and whilst neither can be 100 per cent accurate, they still provide the best possible barometer of success for investment landlords.

Any buy to let investor is more likely to succeed if they adopt a professional approach. At Belvoir, we recommend that all our landlords conduct regular rental yield calculations and store their results on an excel spreadsheet for year on year analysis. It is good practice and something we are happy to help with and advise on.  

What is a Gross Rental Yield?

  • This is the expected annual rental income of a property expressed as a percentage of the total property value.

  • Whilst not being wholly accurate in terms of what you receive, it can provide a good yardstick for comparison and increases the likelihood of a successful venture.

How is it calculated?

  • Firstly, establish a probable monthly rent – this can be done by looking at similar properties in the area. If you’re unsure, ask at your local Belvoir office.

  • From this, calculate the likely yearly rent – just multiply the monthly rent x 12.

  • Next, divide the yearly rent figure by the purchase price of the property.

  • And finally, multiply this by 100 to get a percentage. This is the Gross Rental Yield.

Once you’ve calculated the gross yield look at how this figure compares with other property averages – both locally and nationally.

We advise all landlords to conduct gross rental yield calculations on a variety of properties before making a purchase.

The first property you see may be the one that tempts you into the sector but it may not always be the best investment. Buy-to-let can be very profitable but only if researched thoroughly and treated like any other business opportunity,” says Alejandra.

What is the Net Rental Yield ?

  • This is a calculation of the total rent received minus the expenses that the property incurs expressed as a percentage of the total property value.

  • If your expense costs are accurate this is a very easy way to monitor the profitability of your purchase.

How is it calculated?

  • Firstly, take the monthly rental amount, which will be listed in the tenancy agreement for the property.

  • Next, multiply this by 12 to establish a yearly income.

  • Then, subtract any percentage of the year that the property may be unoccupied (if applicable).

  • Add together the yearly outgoing costs – e.g. insurance premiums, replacement of fixtures and fittings, periodical property redecoration, maintenance, ground rent (if the property is leasehold) and the lettings agency costs, etc.

  • Then, subtract the total outgoings from the yearly income to determine the net income.

  • Lastly, divide your net income by the total property value and multiply this by 100 to get a percentage figure.

This is the Net Rental Yield – the return on your investment.




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