Considering purchasing a buy to let property?
Purchasing a buy to let property and becoming a landlord can be very daunting with a minefield of information to take on board, regulations to meet and wanting your investment to reach its full potential.
We are often asked by potential landlords to suggest suitable rental locations and recommend buy to let properties.
One question which is not frequently asked, but should be considered, is the rental yield.
The rental yield is the annual return on your investment, ie. The profit you make on the rental determined as a percentage.
If you own the property outright, you can calculate the rental yield by dividing a year’s rental income by the purchase price of the property.
Should you have a mortgage over the property, the rental yield can be calculated as follows:
- Calculate the upfront costs of purchasing the property, such as deposit, solicitor’s fees, Land, Buildings and Transaction Tax and any other costs.
- Calculate the costs of the total mortgage repayments over 12 months.
- Calculate your rental income over 12 months.
- Calculate the gross rental income. To do this, subtract your annual mortgage repayments from the annual rent collected. Then deduct your costs, ie. Fees, repairs, insurance, void periods etc. to get the net rental income.
- Calculate the net rental yield by dividing the net rental income by the initial investment figure and multiply by 100.
Example:
If net rental income is £10,000 and the property cost £200,000, the net rental yield is simply £10,000 divided by £200,000 which equals 0.05 or 5%.
Making the correct investment will hopefully result in your property achieving a good rental yield as well as sustaining capital growth.
Macleod and MacCallum Lettings are here to advise you at the earliest possible stage in this process so please contact us on 01463 258002 if you are thinking to buying an investment property to rent.
