What is a good rental yield?

So, you’ve read the property investor guides and you’re now ready to begin your search for a buy-to-let property… or are you?

Until you’ve established what your rental yield will be, it’s a good idea to put a pin in your search – otherwise you may find that your foray into property investment has failed at its first hurdle.

Moneybox House

Put pen to paper and do your sums to work out just how much you need to charge for rent to make the investment worthwhile. If you have to charge a hefty rent to make a return on your investment, your property budget is probably erring on the high side and will need some revising.

So, what is a good rental yield? We’re on hand to provide all of the property investment advice you may need.

What is a rental yield?

A rental yield is the amount of rent you can expect to receive from your property over the course of a year. The figure is always a percentage which is worked out by dividing your yearly rental income with your total investment. 

How to work out rental yield?

To work out the yield on a rental property manually, you’ll need to divide the annual rental income by the price of the property and then multiply this by 100.

So, if you bought your property for £200,000 and charge £10,000 per year in rent for it, this would give you a rental yield of 5%.

A much easier way to work out your rental yield would be to use our online rental yield calculator.

What is a good rental yield?

Your rental income should cover the running costs of the property, including any mortgage repayments and lettings expenditure that you’d otherwise incur. Failure to plan accordingly will cause you to dip into your contingency fund more often than you probably should.

Savvy property investors aim to achieve a rental yield that’s around 5-8%. Ideally, this should cover all of your necessary expenses and give you a reasonable return on your investment.

What are the average rental yields in the UK?

Obviously, rental yields will depend on the region in question. Currently, the best rental yields in the UK can be found in Nottingham – which achieves an average rental yield of up to 12%.

However, the buy-to-let potential of the Isle of Wight shouldn’t be overlooked. Property prices are far lower than like-for-like properties in the nearby mainland and currently, rental yields along with demand is high. In fact, just over a year ago, the Isle of Wight was highlighted by investors as the new property investment hotspot.

Recap: What’s a good rental yield?

  • Between 5-8% rental yield will provide a good return on your investment.
  • Establish your rental yield by dividing your annual rental income by your total investment.
  • The Isle of Wight has been highlighted by investors as a buy-to-let hotspot.

For more advice about rental yields, speak to a member of our buy-to-let team.