What Is A Good Rental Yield In The UK?
Nearly 4.4 million households live in rental properties in the UK, so it’s little wonder that so many people are interested in purchasing property as an investment. It’s about more than just finding a property to invest in, though. Instead, buying rental property means building a good understanding of rental yield and how it might affect your overall return on your investment. What is a good rental yield? Is there a yield calculator out there that can help? Is buying to let worth it in today’s market? This guide will help you understand how to make your buy to let investment perform as well as your expectations.
Calculating Rental Yield
In most cases, there are no hard and fast rules when it comes to determining what is a yield that is worthwhile and what is a good yield that will mean real growth for your property. If you’re going to invest in property in the UK, though, you have to know how to calculate rental yield so you have some idea of what you’ll make.
If you’re looking for fairly general guidelines, though, most investors will tell you that a rental yield that is considered fairly good would be earning about 7% on their UK rental home. What you don’t want to do, though, is buy a property based solely on the idea that you’re going to get a high rental yield. You must take into account a number of other factors as you look at buy-to-let properties. For example, you might invest in a rental property in the UK with a high rental yield, but you won’t not have a high return on your investment if you decide to sell later. It may also have a long history of unfavourable tenants, and that could also affect the value of an investment property in the UK. You’ll want to weigh all factors before you make a decision.
Among those factors, of course, though, is the property yield itself. Learning how to calculate rental yield doesn’t have to be hard. You won’t even need a rental calculator to do it. Instead, you’ll need the rental PCM, meaning the rent that is paid per calendar month. Multiply that number by 12 so you can come up with the annual income that is made off that property each month. Then you need to know the price of the property. You’ll divide the annual rent by the price paid, then multiply it by 100. That will bring you a percentage that is your rental yield.
Here’s a quick example that may help clarify things. If you have a property that cost £200,000 and the rent each month is £500, you’d multiply £500 by 12. Then you’d take the resulting £6000 and divide that by £200,000. The number there would be 0.03. Multiple that by 100, and you would come up with 3%, which is your rental yield.
Keep in mind, though, that this one number doesn’t mean everything. It’s just the gross yield. It doesn’t take into account your extra expenses like running the property itself and the mortgage repayments. If you’re a fairly new landlord, you’ll need to use at least part of the rental yields to build an emergency fund so that if a major repair to the property is required, you can take care of that. Your emergency fund can also help you deal with any periods when the rental remains unoccupied. Knowing how to work out rental yield isn’t the only thing you must know. How to calculate rental yield is only one step in the process. You also need to know the basic costs when you invest in property in the UK, too.
What are the Best Rental Yields in the UK?
Now that you know more about property yield, you may be wondering how to make a UK house rental truly pay off, and part of that is to look for investment properties in the UK that have a great location known for better rental yields. Not all UK property investment locations are equal. For example, renting in York may have you at an average of 5.71% while a house to rent in Hull may mean you make something closer to 6%. Properties to rent in Birmingham have a much higher average rental yield, something closer to 7%. A rural property to rent, though, may mean a lower yield, closer to the average of 4.75%. On the whole, the highest rental yields on average tend to be in Edinburgh, where landlords there report an average of 9.89% yield.
Finding the Right Property To Meet Your Needs
If you’re looking into the UK house rental market, property yield should only be part of your thought when it comes to the right property to meet your needs. Renting a house in York may be quite different from renting a house in Edinburgh, and it comes with its own challenges. Learn more about all aspects of renting properties before you actually make the choice to become a landlord.