Rental Yield: What is it and how is it calculated?

slump in buy-to-let investment
Tax and regulatory changes have resulted in a slump in investment in the buy-to-let sector.

Rental yield is one of the key considerations for new or existing buy to let investors.  It can help a landlord calculate whether a property will be a good investment, and determine the affordability of buy to let mortgages.

Simply Business have provided a quick guide to help landlords understand what rental yield is and how to calculate what their potential yield may be.

Definition of rental yield

Rental yield describes your annual rental income, as a percentage of the total value of the property.

Rental yield can be a crucial factor in helping investors determine whether a property is a worthwhile investment however, capital appreciation, the potential increase in value of the property itself, can also be a key indicator for many landlords or investors.

Capital appreciation has been an overwhelming consideration for many landlords over the last few decades however, with economic uncertainty on the horizon and the housing market beginning to slow, many landlords now prefer a slow and steady rental yield rather than dramatic capital appreciation.

How to calculate rental yield

To calculate the rental yield of a property you need to divide the annual rental income for the property by the value of the property and then multiply the figure by 100 to get the percentage.

If your annual rental income was £12,000 and the property was valued at £200,000, your rental yield would be 6%.

Calculating rental yield for a property that an investor has not yet purchased or has not yet secured a tenancy, can be a little more complicated.  In situations like these investors will need to research rental prices in the area considering factors like; transport links, good schools and local amenities.

UK’s best rental yields

The top ten areas in the UK for rental yield are listed below:

  1. Romford
  2. Luton
  3. Dartford
  4. Rochester
  5. Watford
  6. Enfield
  7. Southend-on-Sea
  8. Northampton
  9. Colchester
  10. Stevenage

Full article is available on Simply Business: http://www.simplybusiness.co.uk/knowledge/articles/2017/06/how-to-work-out-rental-yield-for-uk-properties/

RentPro has been providing letting agent software for over 10 years. Our property management solutions are available in a number of plans for landlords and letting agents alike.

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