Property yield, often referred to as rental yield, is a financial ratio used to gauge the profitability of an investment property. It represents the percentage return an investor can expect from their property, relative to its cost or market value. For investors, understanding property yield is key to deciphering their cash flow position. By carefully monitoring and maximising their yield, investors can cultivate a sustainable rental income stream, and ultimately secure a robust return on investment. So, what are the best strategies you can implement to increase your rental yield?
How to Calculate Property Yield
To calculate your property yield percentage, follow this formula:
Property Yield Percentage = (Annual Rental Income / Property Value) x100
What Is A Good Rental Yield?
When asking ‘what is a good yield on rental property?’ it can be hard to pin down a distinct answer as defining a 'good' property yield is not a standardised concept, as it varies based on factors such as location and property type, as well as the let model.
As a general guideline, a gross rental yield on an AST rental agreement, ranging from 5 to 6 per cent is typically considered 'good,' while anything surpassing 7 per cent is deemed 'very good.'
However, the most important aspect is ensuring that the net rental yield covers all essential property expenses because your goal may be for capital growth and markets typically with low yields will see a bigger growth in capital upon resale.
Your yield is essentially a reflection of your risk. For example, investing in property in a regeneration zone is a riskier investment. Demand is lower than for properties in prime locations making prices lower, thus your rental income as a portion of the total price is higher - your yield.
Using a worked example, consider you buy a two-bed property for GBP200,000 in Digbeth, Birmingham. You are likely to get at least GBP1,000 per month in rent, giving you an overall yield of 6%. If you buy a two-bed property in central London for GBP900,000, you could easily get triple the rent at GBP3,000 per month, but the rent growth is still not substantial enough in relation to the capital and your yield will be 4%. In prime markets, the focus is on capital growth, not yield.
Implementing Renovations for Higher Returns
Enhancing property value through renovations is a strategic approach favoured by real estate investors. Beyond aesthetics, renovations can also improve energy efficiency and functionality, reducing utility costs and optimising the property's long-term sustainability.
The first step involves appropriately identifying areas of the property that require improvement and prioritising what needs to be done within your budget. A comprehensive assessment of both the interior and exterior elements, including outdated features, wear and tear, and structural integrity, is essential.
Below are a few options for quick and cost-effective renovations that can improve your yield:
- Paint: A fresh coat of paint can make a big difference in the look and feel of a home. Choose a light, neutral colour for the walls to make the space feel larger and brighter. It is also an easy canvas for tenants to build their style around. Typically, internal walls should be painted every 3–5 years.
- Replace hardware: New doorknobs, cabinet pulls, and light fixtures can update and modernise the look of an apartment without a major renovation.
- Update your flooring: If your flooring is looking tired, consider refinishing it or laying down new carpets. Refinishing hardwood floors can be a relatively inexpensive way to update your home, and it can add value to your property, but installing hardwood floors is expensive. Laminate flooring can look just as good but is much more affordable. It is also easy to install and maintain.
Attracting Quality Tenants
Conducting thorough market research enables investors to identify the specific demographics, lifestyle choices, and demands of their prospective tenants. By tailoring the property features, amenities, and lease terms to align with these preferences, investors can effectively position their offerings as the preferred choice in a competitive rental landscape.
Equally critical to attracting quality tenants is the emphasis on timely maintenance and addressing tenant concerns. A well-maintained property not only enhances its curb appeal but also communicates a sense of professionalism and commitment to tenant satisfaction. Regular upkeep and swift resolution of maintenance issues fosters a positive living experience, resulting in higher tenant retention rates and positive word-of-mouth referrals. Maintaining a good rental yield is essential for ensuring the average profit from rental property UK.
Additionally, effective communication channels and responsive property management play a pivotal role in nurturing a positive landlord-tenant relationship. This proactive approach to tenant satisfaction not only encourages longer lease terms but also attracts high-quality tenants who value an attentive and reliable landlord.
Utilising Property Management Services
Efficient property managers have the potential to significantly improve rental yield through expert management techniques. These professionals diligently monitor rental rates in the local market, ensuring that the property's rent remains competitive yet profitable. Furthermore, property managers proficiently handle maintenance and repairs, proactively addressing issues before they escalate, and preserving the property's value in the long run.
When choosing the right property management service, there are a few factors to consider. Conducting thorough research to assess the company's track record and reputation in the industry is essential. Reading client testimonials and seeking referrals from fellow investors can offer valuable insights into the quality of service provided. Moreover, evaluating the company's expertise in managing properties similar to one's own can ensure that the selected service possesses the required experience for the job.
With an impressive 99% occupancy rate and averaging an achievement of 102% of forecasted rents for the year 2022, Complete Prime Residential is an excellent choice for investors looking for a reliable property management service.
Complete offers a full range of services including managing handover from the developer, preparation of the property with furnishing and design services, lettings and property management. When it’s time to realise your investment potential, they can help maximise returns with their resale service based on in-depth market insights. Find out more here.
Increase your rental income with IP Global
Within the world of real estate investment, considerations to maximise average profit from rental property within the UK, are a part of every intelligent investor’s strategy. Through comprehensive rental market analysis and strategic adjustments, investors can optimise their rental rates while preserving property value. By staying agile and responsive to market fluctuations and seasonal demands, investors can secure sustainable growth and forge successful relationships with tenants. This is a key part of building a long-term, fruitful property investment portfolio.
If you would like to learn more about property investment and opportunities to increase your rental income, don’t hesitate to reach out to one of our experienced Wealth Managers.
