There are many other factors that affect the attractiveness of a rental property. Now, experienced real estate investors who know how to manage their properties well and are looking to improve cash flow can succeed in chasing this strategy. A property with a high net rental yield is ideal for risk-averse investors who want to afford peace of mind as their investment generates good cash flow and ultimately takes care of the mortgage payments.
However, experts advise against selecting a property solely based on rental yield. This is because high yielding income properties can come with increased risk or little capital growth. What you want with your first rental property is a good rental yield that can balance out with strong capital growth for a better performing portfolio over the long term. So what is a good rental yield for your first rental property?
It depends on your personal preferences and your specific investment property. Here are a few tips to achieve a good rental yield with your first rental property. To help you really understand the financial aspect of real estate investing , we recommend using a rental property calculator. It also provides valuable insights into analysis so you fully understand your property. Find out what is a good rental yield for your rental property in your neighborhood with our advisory tools.
All you need to do is sign up now! This is a good measure of a property's potential rental return but of course, it is not the be-all-and-end-all of your calculation. If, for instance, you are buying your property with a mortgage then you will need to take these costs into account when you are calculating your returns. This is a free tool and we give full permission to any website owner to embed it on their own website should they want to provide it for their users.
Simple copy the iframe code below and paste it onto a web page. When investors focus too much on other factors in a property down-playing the importance of a good rental yield in their calculations , that's when they run into trouble.
Capital growth, for instance, is an important part of planning a property portfolio. Choosing the best area to invest in - one that promises a rise in house prices - will make you good money in the long run. Similarly, being able to spot below market deals and snap up property for less than it's potential worth is worthwhile for obvious reasons. But, if you focus on just on either capital growth or on finding BMV deals without properly considering rental yield, then you risk losing all of the gains you might have had and more.
Because, making sure that the property pays for itself month-by-month is far more important than securing a discount when you bought it, or some theoretical profit when you sell.
There are a number of different methods by which investors work out rental yield for an investment property. Then you take that figure and multiply it by to get a percentage.
So when you are trying to find the best area in which to invest you need to be careful that you choose somewhere where the rental returns make sense. Areas that have a fantastic rental demand or capital growth can be very tempting.
Similarly below market value property can often look like a good deal. Capital growth-focused investors however with low gearing mortgages who focus on city-centre locations may be the exception to this rule, where often they prioritise potential growth over everything else and yield is secondary. In order to be sustainable over the long term your rental income needs to cover the running costs of the property and - I can't stress this enough - you also need a contingency budget.
For instance, interest rates on mortgages are at a historical low at the moment. And mortgage payments are only one cost in many. From your rental return, you will also need to cover management fees, buy-to-let landlord insurance and maintenance costs, all of which can fluctuate.
Costs can go down of course but you need to plan for when they inevitably go up. A house has a boiler and a roof, both of which can suddenly need replacing without warning and at significant expense. Whilst a good rental return is extremely important when you are choosing a buy to let investment property there are of course other elements that you will need to balance out as an investor.
In other words, although it is of paramount importance that the rental yield is high enough to cover costs, that doesn't mean that you should be aiming for the highest possible return. Does this fact make these properties fantastic investment opportunities?
Also, properties like this are difficult to sell and with any investment, an exit strategy is an essential thing to plan. The best investment properties strike a balance between a lot of different factors. As in life, the trick is to find a happy medium. But, you also need to have a good location, good capital growth and decent tenant demand. In the age of property websites, finding out how much rent is charged in like-for-like properties nearby is only ever a click away.
So, what is a good rental yield and how can you establish this? In a nutshell, a rental yield is the value of the rent you can expect to receive from your property in a year. A much easier way to work out rental yield would be to use our online rental yield calculator. Unless you plan for this, you may find yourself having to dip into your contingency fund more often than you should. So, what is a good yield? This should cover all of the necessary expenses while allowing you to make a reasonable return on your investment.
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