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Understanding terminology: What does a property’s “yield” mean?

Posted by Matt Munns on June 13, 2017
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“Yield” is possibly the most important word you’ll hear when investing in a buy-to-let and beginning your time as a landlord. But what does it mean? And what should you know before you choose an investment property?

Think of Yield as your return on investment

It’s easy to get lost in property market jargon, but “yield” is a fairly important but easy term to understand. Your property’s yield tells you how much of an annual return you’re likely to make on your investment. It is calculated by expressing a years’ rental income as a percentage of the original cost of the property.

So, for example, if you’re looking to buy a flat to let and its rental is £100 a week, the annual rental is £52,000. If it costs £100,000 to buy, then the yield is 5.2%. However – remember this is the gross yield. The net yield – what you actually pocket – is what comes after repairs, fees and running costs.

Trust your head, not your heart

One thing you should keep in mind before you commit to a buy-to-let is that you won’t have to live in it. This sounds obvious, but emotional decision making with buy-to-lets can mean landlords miss out on places with fantastic potential because they couldn’t imagine themselves living there. Well, you won’t be living in your buy-to-let. Consider how good the catchment area is – renters may be willing to overlook a slightly less desirable property if it has great access to schools, shops and transport. Convenience will trump everything else when it comes to the renter sacrificing something about their dream let.

Look at functionality

As we’ve pointed out before, a property’s aesthetic can seriously help grab a tenant’s attention, but this is completely in your hands to fix. So while you know you can make a rental property look good, think about where it is, how close it is to local amenities and how it compares to other properties on the market. Ugly but functional properties will serve tenants well if you’ve researched the kind of tenant you want to attract and commit to a little spending on the restoration work. This means that an above-shop flat can become something very attractive with a competitive rent and tenants are more likely to overlook a poor view or road noise if the property is close to town and looks fantastic.

Come out of your comfort zone

Be brave and talk to lettings agents to get advice on the property in an area that performs well, giving you that all important return on investment. At iLet, we’re ready to take you through those first important considerations and steps with buy-to-let properties. Drop us a call today to find out how we can help you.

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