There’s little doubt the most vital marker in terms of residential property investment is ‘Rental Yield’. This offers a measurement of the level of return on annual rental income, as a percentage of how much you paid for the property. Let’s say as an example you paid £165K for a property, securing a monthly rent of £825? In this case the gross yield achieved would stand at 6%. But remember – because of inflation the more you spend on purchasing a property, the lower your return will be. And the reason is simple. Rental value won’t keep pace with price inflation. Recent statistics show the UK as having an average rental yield of round about 3.6% – and with prices being higher in London, it’s obviously more difficult to attain higher than average yields in the capital, but it can be done with the right planning.
This encompasses maintenance and repair costs, accountancy fees, building insurance and other associated costs. If you’re about to become a new landlord you need to put agents and solicitors fees, stamp duty and furnishing costs into the mix for your first year of business.
There’s something else however, you need to look at long term when trying to earn annual yields above the average. Achieving solid ‘Capital Gains’ on your property could help further down the line when you come to sell – but combined with a healthy average rental yield, it’s possible to get beyond the average level of profit. In short, annual rental yields are not the only factor involved in helping you profit from the investment. In London, property prices slowed for a while, but there are now signs this is reversing. If your property purchase is appropriate for your requirements, and in an area where house prices continue to increase, your chances of getting above that average rental yield are much greater. Making the right decisions at the start of your landlord adventure can certainly help you get above the average.
Demand from Tenants
Consistent and better yields really depend on demand, so this is where the best research and planning can help you find the perfect investment. Would you want to concentrate on the student population? Maybe a mixture of students and young professionals appeals to you? Or would you be happy catering for the family market? Whichever road you decide to go down it’s imperative you get the right property in the right place. This will guarantee the property is occupied long-term, providing the best possible income. Given all of this there’s a clear picture developing. The better your initial due diligence, the better your chances of success going forward.
There’s plenty of demand in London, so finding those areas where demand is at it’s highest will help attract higher than average yields. It’s likely students and professionals will want to be in or around city and town centres, while families will be attracted to properties further outside.
Savvy Landlords will ensure they stay ahead of the property curve when it comes to pricing, so they can react speedily to a competitive market. Modern landlords are setting the bar consistently higher, in order to reach maintain a high rental yield.
A Trending High Rental Yield Area
With an average rental of around £400 monthly, Stratford in London’s now fashionable East End can attract yields of more than 4.4%. In fact, lots of first time landlords are being attracted to the area because of lower than average property prices, high demand and large scale regeneration. This is certainly proof, being in a rental hotpsot is good news for better annual yields. The average rental yield figure in London is around 4% – but remember, this is an average figure. property in the E15 postcode or Newham, will typically carry a 4.5% rental yield – that’s above the capital’s average with an average monthly rental of £1421 set against average purchase prices of around £354K.
Numbers Of Renters Growing In London
What shouldn’t be forgotten is, as renters across the UK including London have grown in size, so too has the total number of private landlords. In fact, there are more than five million privately-let properties in Britain today. It’s actually a good thing competition has added spice to the market with landlords in mind, as impressively maintained, fully insured and first class properties can result in higher than average yields in many cases.
Buying Through A Company
If you have a portfolio with more than one property it’s possible to get a good yield when buying through a company with an excellent reputation in the market. A staggering 64% of landlords with four or more properties who added to their investments in 2019, will have purchased another from a company as opposed to individually. This is without question the current trend. Why? Because any landlord who purchases as an individual, will be subject to tax charged at income rates. When they buy through a company they can benefit from preferential rates of tax.
Utilising Property Management
Utilising the services of Like-Minded Living should you wish to let your home, means you can not only envoy some superb property management services, but also have peace of mind when it comes to 24/7 property maintenance, property inspections and rent collection. And actually, those landlords working with them have enjoyed increases in their annual rent without experiencing any vacancies.
Recent regulation changes by the Government includes a reduction in tax relief on finance costs for Buy-to-Let landlords. All the changes have encouraged property investors of all shapes and sizes in the area of buy-to-let to re-evaluate their portfolio. Focussing on rental yields alone may not result in greater long-term profits, though of course this largely depends on the locality the property is in. The bottom line seems to be, making better than average profit is really about a combination of rental yield, capital gains and buying a property in a rental hotspot. As we’ve touched on, the good news is there are plenty of those in the capital.
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