It is an ROI calculation on the current value and rental income of a property, expressed as a percentage.
Calculating your rental yield will help you see if your property is a good investment, and you might need it if you’re considering a buy to let mortgage.
You can use the calculator to work out your gross rental yield either based on the original cost of the property, or what it’s currently worth.
Let’s take an example using easy round numbers.
Say you own a flat which is worth £200,000:
Net rental yields give you a more accurate projection/estimate of your monthly income than gross rental yields, because they include a provision for anticipated expenses.
For example, you may want to consider the impact of empty periods between lettings when you have zero rental income.
These can be hard to estimate and may depend on what end of the market you are in.
As a rough rule of thumb, lower end/smaller properties might only be empty for two weeks in 18 months. Meanwhile, higher end/larger properties could be empty for as long as two-three months in 36 months, however, you should also factor in that tenancies tend to be longer for larger properties.
Your lettings agency should guide you on the lengths of typical empty periods in the area (although, clearly, demand for rental properties can fluctuate). Happily, correctly priced property in Cheltenham will typically let fast, thereby limiting empty periods. But there are other expenses you should account for when calculating your likely net yield.
Common expenses are: new tenancy set-up fees/referencing costs, gas safety certificates, electrical installation condition report (EICR), energy performance certificate, general maintenance.
Also bear in mind your interest payments on any mortgages if the property is mortgaged and the likelihood of interest rates rising/falling.
You can read more about buy-to-let yields in our articles ’How to Manage Your Buy-to-Let Property’ and ‘Assessing Buy-to-Let Yields’.
If you’re in any doubt about your buy-to-let property’s yield, contact us for further help.
We always recommend you also talk to a financial advisor before taking on a buy-to-let investment.
