What is rental yield? Rental yield is the amount of money a landlord receives in rent over one year, shown as a percentage of the amount of money invested in the property. A property investor needs to consider costs above and below the ‘plimsoll’ line as well as void periods i.e. the period during any one year that the property stands vacant during tenant change over, latest ARLA data states void period are running at UK average of 17 days per annum.
Cost considerations are but not limited to:
1) costs of finance setup - booking fee, arrangement fee, valuation, brokers fees
2) legal fees, searches
3) costs of any refurbishment (including your own time)
From the monthly rental return, you should remove
1) costs of finance - repayments/interest
2) costs of compliance - safety checks, repairs, insurances
3) allowance for void periods between lettings
4) service costs (if applicable)
5) management fees/finders fees if using an agency
6) Advertising costs
A basic formula for rental yield is:
mrr = monthly rental return
i = investment
yield = mrr*12/i*100
If you want to factor in loan costs a calculator can be found at http://bit.ly/lvMuB9
