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What is rental yield?

Rental yield is a significant factor in buy-to-let investments. It reflects the amount of money you make from the property. Gross rental yield is your annual rental income expressed as a percentage of the property price. Net rental yield also takes into account the costs of running the property (including outgoings like maintenance). Both of these figures are important to understand.

Equally, if not more, important is knowing how to optimise your rental yield. Investing in the right property to command a high rental return takes expert knowledge and local area insights. That鈥檚 where our professional guidance proves invaluable. Our knowledgeable local agents can advise and guide you to make informed decisions about your rental property.

Which factors influence rental yield?

If you鈥檙e ready to become a landlord, and are keen to maximise your return on investment, there are key factors that will impact your rental return. Before buying a property to rent out, you've got to figure out if it鈥檚 a worthwhile venture. The following factors will contribute greatly to your rental yield.

1. Property location
Location, location, location. It鈥檚 been a mantra (and popular property TV show) for decades for good reason. Where you buy your rental property will greatly affect the amount you can charge for it. You could buy a property with a strong yield, but if house prices in that area aren鈥檛 rising or you can鈥檛 find tenants, it鈥檚 unlikely to be a lucrative investment.

鈥淚f you鈥檙e buying in Prime Central London, properties with unobstructed views of iconic London landmarks, the river, one of the many royal parks or a wonderful city skyline, will always command a premium rental. Addresses with historical or cultural cachet such as Mayfair, 博鱼体育集团sbridge, Kensington and more recently Notting Hill, will also attract a higher yield,鈥� explains Mags O鈥橤rady, 博鱼体育集团 Frank Partner and Head of Kensington Lettings.

It鈥檚 wise to do your research and get your head around market trends. Do you want to invest in a local area that you know well, or somewhere further afield that鈥檚 affordable and presents a good opportunity? If you want to attract students then you need to look in university cities and towns. Families will be looking to rent near good schools and amenities, whilst corporate clients will want transport links for commuting and/or space for a home office.

Buying in an up and coming area can be a wise move as house prices are likely to rise, and its appeal for tenants will grow too. Take in South East London for example. Its exemplary education offering is the hook that draws families to the area, but the attractive lifestyle keeps them there. Presenting better value than its better-known, comparable London villages like Hampstead and Wimbledon, demand for family homes currently outstrips supply in Dulwich. You need to have your ear to the ground and be able to move fast if you want to buy there. But once you form roots in the area, you鈥檙e likely to stay. The average resident lives in the area for 19 years. That鈥檚 a very positive sign if you鈥檙e looking for long term tenants. Our local team in Dulwich would love to help you find your buy-to-let property there.

2. Property quality
Who鈥檚 your ideal tenant? Are you looking for an individual, corporate, local or international tenant or tenants? The way you present your property will affect its appeal to potential tenants.

In our experience, well-presented, high quality properties can command higher rents. Many people are looking for well-maintained, turnkey quality properties to call home. Ensuring your property is finished to an excellent standard will increase its appeal to tenants willing to pay higher rental prices.

Mags O鈥橤rady advises that, 鈥淚n Prime Central London, we find that properties with architectural quality or exceptional amenities tend to achieve higher yields. Be that period properties with lots of original features or contemporary designs by renowned architects and developers. Also, high end luxury developments with a 24 hour concierge, secure parking and wellness facilities also hold great appeal.鈥�

offers a furniture rental service to this end. They鈥檒l stage your property impeccably to maximise its appeal. Their skilled designers give careful consideration to the design, style, and functionality of your property, and importantly, achieving rental yield.

3. Gross rental yield
Your gross rental yield is the value of your return before you take off your expenses. You calculate it by taking the price of the property and the income generated from it. Follow these three steps to calculate your gross rental yield:

• Your monthly rental income multiplied by 12 = annual rental income
• Divide your annual rental income by the property purchase price
• Multiply that by 100 to get your gross rental yield percentage.

Say your monthly rent is £2,000 and your property purchase price was £500,000.

£2,000 x 12 = £240,000.

(£240,000 / £500,000) * 100 = 4.8% gross rental yield.

Gross rental yield is often used by mortgage lenders when considering the affordability of buy-to-let mortgages.

The goal of achieving a decent rental yield and a quality tenant is an intricate aspect of property management and investment. Investing in a luxury property with convenient, on-site amenities and services is one way to attract high quality tenants willing to pay higher rents. We tend to find that quality properties have more balanced yields and attract more reliable tenants.

4. Net rental yield
Your net rental yield can be seen as a more comprehensive picture of your investment return. Unlike gross rental yield, the net rental yield reflects the associated costs of owning a property too.

As any property owner knows, the purchase price is only the start of your expenses. There are ongoing fees and costs too. To calculate your net rental yield you need to:

• Multiply your monthly rental income by 12 = annual rental income
• Take off your annual costs of owning that property (including mortgage payments, insurances, maintenance and property management costs)
• Divide that amount by the property purchase price
• Multiply that by 100 to get your gross rental yield percentage.

If your annual rental income doesn鈥檛 cover your mortgage payments and costs of owning the property, your rental yield and return on investment is likely to be low.

Our experienced property management team is adept at securing a rental income that works for you and your tenant and ensuring it鈥檚 paid on time. They鈥檒l manage your property and the necessary admin and maintenance services and costs. Their exemplary service can optimise your rental yield, bringing you peace of mind as well as a decent return on investment.

5. Market trends and demand
The rental landscape, and wider property market, is evolving rapidly. It鈥檚 important to keep abreast of changing regulations as well to understand your obligations as a landlord. One such change is the proposed Renters' Rights Bill which empowers tenants rather than landlords.

The recent autumn budget will have an impact on the rental and buy-to-let markets too. Tom Bill, Head of UK Residential Research at 博鱼体育集团 Frank explains, 鈥淔irst, tighter rules around non doms, combined with a top marginal rate of stamp duty that is now 19%, may mean that renting becomes a more attractive option for some high-net-worth individuals.鈥�

鈥淎t the other end of the market, more first-time buyers could explore the rental option due to the fact their stamp duty bills will rise by up to £6,250 as a result of the nil rate bands reverting to previous levels from next April.鈥�

An option that you may not have considered is lettings associated with film and TV projects. With recent tax breaks, this UK industry is a growth area. 博鱼体育集团 Frank data shows a 26% increase in enquiries from the TV and film industries (Jan - Sept 2024 v Jan - Sept 2023). This demand is for furnished, turnkey letting properties in London and South East England to be used by film crews and actors.

鈥淚t鈥檚 become a notably bigger business compared to a few years ago,鈥� said Harriet Gore, head of the film and media team at 博鱼体育集团 Frank. 鈥淭rying to find stock to meet demand is the biggest problem. The most popular areas are Hampstead, St Albans, Notting Hill, and Richmond.鈥�

She continues,  鈥淭he scarcity of suitable properties means it can be a worthwhile option for owners who are struggling to sell or landlords who might traditionally choose longer lets. Weekly rents range from £1,000 to £2,000 for crew members and production staff up to £25,000 per week or more for A list stars. Landlords that offer a high level of service and professional property management are able to command the highest rents and see productions returning year after year.鈥�

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Maximise your rental yield with our help

Understanding your potential rental yield is an important factor when buying to let. It helps you to make more informed decisions when investing in a property. Thinking about your ideal tenant, what they need and where they want to live will enable you to match that to your rental property.

Our specialist teams have experience in managing a diverse range of properties across rental income levels. They can advise you on finding the right property to achieve your investment goals, as well as attracting the right tenant. They鈥檒l manage the tenant relationship ongoing as well as looking after your property.

Find out more about letting your property with us, and sign up to our landlord newsletter for the latest news and insights.