A buy-to-let property should always be treated as a serious business venture. In order to make a return on your investment you need to consider the property’s rental yield and how much profit you’d be likely to make when you eventually come to sell the property.
Think of the rental yield as a monthly income, and the property sale as a much more long term investment. To calculate the rental yield you need to divide your net rental income into the value of the property. Don’t forget to include all the costs associated with buying it such as stamp duty and solicitor fees.
For example, if your net rental income comes to £10,000, and the property costs £200,000 in total, the rental yield is £10,000, divided by £200,000 which equals 0.05 or five per cent.
What is considered to be a ‘good’ rental yield?
The average rental yield for the UK is currently around 5.9 per cent (as of September 2014). However, depending on the area and type of property you’re choosing to invest in, there are fluctuations.
Studies show that in recent years, property investors have started to move away from London, traditionally one of the most attractive prospects for buy-to-let investments. Instead, savvy investors are identifying regions where yields are almost three times as high as in the capital, including Southampton, Manchester, Nottingham and Blackpool.