Calculating Rental Yield

As Letting Agents in Coventry we are often approached by investment landlords looking for properties with a good rental yield.

What is rental yield?

Rental yield is a calculation used by buy to let investors and landlords. The calculation gives a percentage of the annual rental income, against the purchase price of the property. There are many variable’s to consider when buying a buy to let investment property, so it can be difficult to work out if a property is a good investment or not. Working out the rental yield gives the investor a starting point to work out if the financial investment in the property is sound.

How is it calculated?

Working out rental yield is a straightforward calculation. Total annual rental income divided by the total purchase price of the property. Then multiply this figure by 100. This will give you the rental yield as a percentage.

For example

Monthly rental £600.00 x 12 = £7200.00 annual income. If the sale price is £100,000 this would be the calculation.£7200 / £100,000 = £0.072. £0.072 x 100 = 7.2% rental yield.

However this calculation will only give you a basic rental yield and not the ‘true’ or ‘net rental yield’.

Net rental yield

Working out the rental yield of a property is a great way to find out if it is a viable investment. However before proceeding there are many things to consider before. Working out rental yield does not give you a direct comparison to other properties. For example if you are to compare a freehold house against a leasehold flat. The flat will come with additional annual costs such as ground rent. Other examples are new properties against old. New properties will come with certain guarantees and older properties may require more ongoing maintenance. Once you have factored in all additional cost’s into your calculation this will give you the ‘true’ or ‘net rental yield’.

If you are considering buying a buy to let property in Coventry and would like advice on properties you are considering please contact Matthew James Letting Agents Coventry on 024 77 170170 or contact us through our website.

Matthew James