Yield is the percentage of income that you make from a property versus the actual cost to buy. If your property costs £200,000 and you make £10,000 on it annually, then your yield is 5 per cent. Since buying price and income are the two factors that most affect your buy to let yield, this is where investors need to focus to maximise yield as much as possible. They can either get a very good deal on the buying price or learn how to negotiate different markets so that the income from a property is far above the cost of ownership.
How to Get the Yield You Need from a Property
A buy to let property requires some detailed research to make sure the yield is going to be within the range you want for your investment. Yields can also depend on how much time and energy you want to devote to the buy to let property, instead of outsourcing maintenance and operations of the rental to someone else. The more you do yourself, the more you save in actual costs, but it can be overwhelming if you are managing more than one property. Likewise its important not to skimp on things like landlords insurance, as small monthly savings could result in a huge repair bill in the future.
To maximise your investment, consider the following:
- Use a special buy to let mortgage lender – They will be able to steer you to the types of loans that can maximise your investment. You may want to opt for an interest-only loan so that the yields are higher in the first years of ownership because the carrying costs of paying the mortgage will be lower. You can accumulate the earnings on the mortgage to pay the note off early or sell before it comes due.
- Buy low and rent high – There may not be as many good deals for property on the market than there once were, but if you do the research you can still sniff some out. If you have experience in construction or remodelling, you can buy less than optimal properties for far less than those that are staged to sell and then fix them up for a profit. If you’re flexible with your own rental needs, you can even live in the property while it is being renovated and reduce your cost of living as well.
- Pick up and coming neighbourhoods – Neighbourhoods that are set to explode with new developments and/or shopping opportunities can provide a favourable rental market in the future. As the area is upgraded, you can increase the lease price accordingly. Similarly, avoid neighbourhoods that are going downhill or you can lose your investment.
- Decide on whether to manage directly or outsource – In some cases, you will get more continuous rental income with a property management company. They can look for people willing to lease and maintain the property for you. However, if you want to save some extra cash, you can also devote some weekends to do these sorts of things yourself. It all depends on how much time and money you want to save or how much money you’re willing to pay to have someone else do it for you.
- Stick to the numbers – When you’re investing in property, don’t let your emotions get in the way. If you can’t negotiate a price that will make the yield work for you, then walk away. There will always be another property on the market. Haggle hard and make sure the owner knows that this is strictly a business decision. They sell at what you are comfortable with or you walk away. Becoming a buy to let mogul doesn’t happen overnight. It takes a lot of research, hard work, and often the cooperation and help of other professionals from mortgage lenders to home remodellers. However, the good news is that if you have money to invest in property, each deal will teach you different things that will make the next purchase that much more likely to have a higher yield.