Anyone looking to serve as a landlord or who is considering entering the buy-to-let market needs to know about rental yields. Rental yield is the return a person should expect to receive on their investment, and different people have different ideas over what constitutes a good enough return on their investment.
A very quick and easy way to calculate a rough rental yield guide can be done in three easy steps:
1) Take the rent per calendar month and then multiply it by 12
2) Take this figure and then divide it by the cost of buying the property
3) Multiply this figure by 100 and you will have your rental yield
Many observers say that any level of rental yield above 4% is of interest as this compares well to other returns available with investing money. What is best for the individual will depend on their own needs and outlook so every potential landlord needs to carry out their own sums and make sure that they know what they are comfortable with.
There is also the fact that there are other costs associated with being a landlord and maintaining property, and there are more in-depth rental yield calculations which provide greater insight into what you should expect, but for a quick guide, the above method is a fantastic starting point.
Rental yield is crucial in knowing where to invest
Anyone interested in or linked to the rental market in Glastonbury should have an interest in rental yields in the area. The overall average property price in Glastonbury has been rising in the past year (by a sum of 29% according to some professionals) so it is understandable that this has had an impact on rental yields.
Taking the average property price in Glastonbury for January 2016 to be £264,187 and the average rent per calendar month for January 2016 to be £688.38, the rental yield for January 2016 in Glastonbury stood at 3.12%. By September of 2016, the average property price in Glastonbury stood at £281,115 while the average rent per calendar month in September 2016 stood at £720.65. This provided a rental yield of 3.07%.
This isn’t the full story though because there are many different types of property in Glastonbury and many different types of tenants looking for different types of property. Looking at the overall market, where there may be large properties for sale, increasing the average property prices, but with most of the rental options being smaller or more affordable houses, keeping the average rent per calendar month at a more modest level, the big picture often provides a skewed return or overview for the market.
For a flat, the average rent per calendar month in January 2016 stood at £500 and in October of 2016, the average rent per calendar month stood at £515. At these points, the average sales price for a flat in Glastonbury stood at £144,500.
This means that the average rental yield for flats in Glastonbury in January 2016 stood at 4.15% while in October of 2016; this had risen to a rental yield of 4.27%. This is obviously based on all other things being equal but with the average rent increasing while the average property price stays the same, there is a rise in the rental yield landlords and investors can expect from the flat market in Glastonbury.
The market for terraced properties shows a more distinct rise in rental yields, which is likely to be attractive for investors. In January of 2016, with average terraced property prices standing at £224,753 and the average rent per calendar month coming in at £585, the rental yield stood at 3.12%. However, by September of 2016, the average terraced property price stood at ££164,275 while the average rental per calendar month stood at £665, resulting in a rental yield of 4.85%. This is a return that would be far more attractive to investors, making the Glastonbury market one to look out for, if you choose the right style of property.
About Tom Morgan
Founder of Jungle Property the multi award-winning letting agent based in Glastonbury, Somerset. I am passionate about property and Glastonbury and about providing the very best advice to anyone who wants the best return on a buy-to-let property investment. For an open and brutally honest opinion on anything in the Glastonbury property market please contact me via tom.morgan@jungleproperty.co.uk
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