Choosing a property
If you are choosing a property to invest in you'll want to pick one that returns the highest possible rental yield.
It is worth clarifying what yield is and how to calculate it.
Yield, or gross yield to be specific, is a calculation most experienced property investors use when assessing whether or not they wish to purchase a property.
How to Calculate Gross Yield
Multiply the monthly rent by 12 to give an annual rent (if rent is weekly x 52) and divide this annual figure by the purchase price of the property.
This gives a percentage return on the investment without allowing for any capital growth.
For example:
£650.00 monthly rent x 12 = £7,800 annual rent.
£78,000 purchase price
£7,800 divided by £78,000 = 10% Gross Yield
The gross yield figure can't on its own tell you whether or not the property will make you money, it should only ever be used as a rough guide and then only with a proper analysis of the costs.
The gross yield will however let you compare the potential returns of one property against another.
What is Net Yield?
Net yield is the gross yield less costs.
Generally the properties that produce the best rental yields are:
- The ones with the lowest void periods. Void periods are an investors worst nightmare and is the amount of time that a property is vacant between tenancies - that is, it is not producing any income.
- One and two bedroom houses or apartments.
- Properties with affordable rents - do not go for the most expensive as the tenant market is extremely restricted. Find out the average income for the area and divide it by 30 - this will produce a rent that the average income should be able to afford.
- Properties smart in appearance. Modern kitchens and bathrooms, plus recent but neutral floor coverings and decoration all assist in sourcing tenants quickly and getting the best rent.
- Properties in quiet yet convenient areas, proximity to rail, tram, tube, airport and motorway networks are important plus walking distances to places of work and relaxation such as bars and restaurants and walking distance of convenience shops can all assist in making your property the one that the tenant wishes to rent.
- Those that meet the specific tenant demands in your area - Remember - Each area is different! You should always purchase and present a property to suit the market. For instance if you present a property unfurnished in a 95% demand fully furnished market you are going to have expect increased void periods as the tenant demand is not for your property.