What is a Good Return on Rental Property?

Perhaps the most important questions landlords will ask when thinking about renting out a property is, “Will this be a good investment?”, and “What is a good return on rental property?”. Here we look at what rental yield is and how to achieve the best possible return on your investment.

What is rental yield and how is it calculated?

Rental yield refers to the profit earned on renting out a property in relation to the initial investment.

To calculate your rental yield, divide the property’s yearly rental income by the amount you paid for the property, and then multiply by 100 to get a percentage rate. For example, if your annual rental income is £12,000 and you paid £250,000 for the property then your rental yield is seen as 4.8%.

The rental yield calculation is a useful way for landlords to compare properties on the market. It is different to calculating your Return on Investment (ROI), which takes into consideration your costs such as maintenance, management fees and void periods.

What is a good return on a rental property?

As demonstrated, it’s easy enough to work out your rental yield, but the main question most landlords will want to know is “what is a good return on a rental property?”.

Recent research shows that the average UK rental yield currently stands at about 4.75%. Obviously, this average will vary according to the location and type of property that you own, but it does give a good indication of how much you can hope to earn from renting in the UK.

What can affect rental yield?

Many factors will affect your rental yield, including:

Rental market demand

Whilst there may be some fluctuations, the market demand for rental properties are usually high for London and other large cities like Manchester, Edinburgh and Birmingham, as people want to be near to their place of work and plenty of leisure activities.

Supply and demand of rental properties

It makes sense that if there is a high demand to live in a particular area, you can command more rental income, which will boost your rental yield.

Economic circumstances

The economic state of the area where you choose to buy your rental property will influence the rental demand, how much you can charge and, therefore, your rental yield. If unemployment is high or if jobs are scarce, demand will be low which will impact on the amount you can charge for rent.

Type of tenant

Students or young working people will not be looking to spend a lot of money on rent than an older working professional or a retired couple with a higher disposable income. Ideally, you want tenants who will rent for long periods of time and who will not be at risk of deferring rental payments.

How can a guaranteed rent scheme boost rental yield?

If you’re a landlord looking to boost your rental yield then it’s worth considering a guaranteed rent scheme (sometimes known as a ‘rent to rent model‘). Void periods do not pose an issue with a guaranteed rent scheme because, even if your property is vacant, you continue to receive your monthly rental income.

The risk of not being paid due to tenants falling into arrears with their rent is also removed because again, rental payments continue regardless. Property management costs are also usually covered by a rent guarantee scheme, as are legal fees, inventory and property inspection costs and tenant sourcing fees.

What is a good return on rental property?

The rental yield shows the ratio between what you paid for a property and the amount that you’ll make in rental annual income on the property.

Different factors can affect your rental yield, including the area in which you rent, the demand for rental property, the economic climate and the type of tenant that you attract.

You can boost the rental yield of your property by using a guaranteed rent scheme like the one offered by City Borough Housing, where you’ll receive a guaranteed monthly income backed by a service promise and fully comprehensive professional property management.

Once you’ve signed up to our rent guarantee scheme, you won’t have to worry about dealing with tenants at all. Chasing up payments, answering queries, maintaining the property and dealing with callouts for repairs are all looked after as part of the service. Plus you get your property back in its pre-let condition, less fair wear and tear, at the end of the agreement.

If you’d like to know more about how a guaranteed rent scheme can improve your buy to let return on investment, and for a free rental valuation, you are welcome to get in touch with our friendly team.