If you’re planning to become a landlord, either through accident (inheritance) or through an investment, then you will need to understand the potential property yield (your return on investment or ROI).
Gross Yield calculations are relatively simple, with the yield expressed as a percentage:
[Click Here to be directed to our Gross Yield Calculator]
What defines a ‘good’ yield depends on what sort of property you have.
What defines that risk may be down to factors to do with the property itself and/or its location.
For example, Cheltenham is known for its Regency properties, and these are typically more desirable so cost more to buy.
Say, you have a flat in a nicely finished 1960s block located in a desirable area of town which gives a good rental income. Its capital value might be depressed because it’s not a period property. But it could give a yield somewhere above 7%.
Conversely, you might have a five-bed Regency property in The Park. This may give a lower yield not just because there is a ceiling on the rents but because the capital value is much higher and likely to rise relatively quickly. In this instance, your yield might only be 3%.
No, yield may not be the only financial appreciation. You might be looking more for higher capital appreciation ie. the value of the property rises quickly.
The sweet spot is likely to be both high capital appreciation and a higher rental yield. That’s why cheaper property that accumulates value because the area suddenly becomes more desirable (as happened with Fairview, say) would be a good investment, so look out for those up-and-coming areas which are going to grow in popularity.
All landlords will get periods when their property is empty and producing no income. Hopefully those gaps will be short but they are certainly worth building into your calculations, if nothing else to ensure you have enough to cover your costs while the property is empty.
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