Calculating Rental Yield
As Letting Agents in Coventry, we are often approached by investment landlords looking for properties with an excellent rental yield.
What is rental yield?
Rental yield is a calculation used by buy to let investors and landlords. The total gives the annual rental income percentage against the property’s purchase price. There are many variables to consider when buying a buy-to-let investment property, so it can be challenging to determine whether a property is a good investment. However, working out the rental yield gives the investor a starting point to determine if the property’s financial investment is sound.
How is it calculated?
Working out rental yield is a straightforward calculation. First, the total annual rental income is divided by the property’s full purchase price. 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 an actual rental yield, not the ‘true’ or ‘net rental yield’.
Net rental yield
Working out the rental yield of a property is a great way to determine 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, 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 ones. New properties will have 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.
