What is Rental Yield?
A rental yield is the percentage of a property’s annual rental income that a landlord receives. This is usually expressed in terms of the number of years to repay the purchase price.
Typically, the higher the income a buy-to-let property generates through monthly rent payments, the better the return on investment. This makes the property more attractive to prospective investors. However, setting the rental price too high may result in extended void periods where it isn’t easy to attract potential tenants.
Factors That Affect Rental Yield and Valuation
1. Vacancy rates
The demand for rental properties and, therefore, their valuation and yield are affected by the national and global economy. For example, suppose there are high unemployment rates. In that case, the demand for rental housing decreases, which means that the supply of available properties increases. As a result, this drives down the rental market, so rent prices are affected.
Similarly, a shortage of rental properties on the market can cause demand to increase. In turn, rent prices also rise accordingly. This is particularly the case when supply outstrips demand in certain areas.
2. Rental income
The amount of rent you charge for your property is also critical in determining the rental valuation and yield. Charging too much rent makes it difficult to find prospective renters, and rent levels may remain unaltered. However, suppose you charge too little rent. In that case, your property’s rental return will be significantly lower, and you may not be able to make your mortgage payments.
To ensure that you are getting the best rental yield possible, it is essential to conduct market research to determine the average rent prices for your area. You can do this by looking at similar properties or asking local estate agents.
3. Rent increases
Suppose you plan to raise the amount of rent you charge tenants. In that case, it would be best to consider the optimal time to do this because it can affect your rental valuation and yield. For example, increasing rent may mean longer vacant periods, which will dramatically affect your profits. However, get the rent increase right — you will have no trouble attracting potential renters and increasing your annual yield.
4. Demand for housing stock
The demand for rented accommodation in an area also affects the rental valuation and yield of a property. Let’s say there is high demand for properties in an area. In that case, the rental yield and valuation will be relatively high as demand is high and supply is low.
However, suppose there is low demand for properties in an area. In that case, the rental yield and valuation will be relatively low as demand is low and supply is high.
5 Ways to Maximise Your Rental Valuation and Yield
To ensure that you can maximise your rental yield, there are several things you can do.
1. Invest in the correct type of property
The type of property you choose to invest in can also determine the rental valuation and yield. For example, if your investment is a buy-to-let mortgage, you should invest in a property that is popular with tenants, such as flats instead of houses. In some cases, a house in multiple occupation (HMO) is ideal for boosting rental yield.
2. Choose the right location
Your chosen location can also affect your property’s rental valuation and yield. For example, if you invest in a property in a popular area for students to live in, there is a greater demand for rental properties. Additionally, proximity to public transport links, amenities, shopping, and schools all help to appeal to renters.
3. Choose the right tenants
Tenant vetting and referencing are vital to ensure you let to the right tenants. Choosing the correct tenants can significantly affect the rental valuation and yield of your property. For example, choosing tenants that do not pay their rent on time, can’t afford rent, cause damage or constantly break the tenancy agreement provisions will negatively affect the rental yield.
4. Make the property attractive to tenants
To increase rental rates and appeal to renters, you should consider investing in property improvement. For example, refreshing the property between tenancies, keeping the rental property well-maintained or installing modern fittings can make properties more appealing to tenants. It will also ensure you will have a high rental yield property.
However, it’s good to remember that not all home improvements increase rental valuation and yield.
5. Appeal to a specific type of renter
Another way to increase rental valuation and yield is to offer an attractive property to specific types of tenants. For example, more people are working from home or are self-employed. Therefore, installing super-fast broadband and having a designated office space can be attractive.
Or have you considered allowing tenants with pets? Pet owners have difficulty finding places to rent because most landlords are against the idea. However, having a pet policy to allow your tenant’s furry friend to live there can set you apart from your competitors in the local area and will enable you to charge premium rental rates.
Conclusion
To maximise your rental yield, you should be looking to increase the value of your investment property without damaging or altering its look. So first, it’s crucial to consider the various factors that can affect rental yield and value. Then, by investing in the right location, getting rental yield calculations spot on and keeping your investment property well-maintained, you can enjoy the profits that a high yield property provides.
If you’re a landlord looking to let your property or portfolio of properties in and around Canary Wharf, then get in touch with our team today.
