It’s often the first question we’re asked by new or aspiring landlords and property investors in Belfast. Once they know what rental yield is, they usually follow up with: “OK, now why do I need to know this - what does it tell me about a buy-to-let investment?”
Put simply: rental yield is one year’s rental income, shown as a percentage of what you paid for the property.
You buy a house for £100,000. You add your costs (eg redecorating or a new bathroom) of £3000.
TOTAL INVESTMENT = £103,000
You charge your tenants £700 rent a month.
Over one year, that adds up to £8,400.
700 x 12 months = £8,400 income in one year.
You take away your costs (like repairs and maintenance) of £500.
TOTAL ANNUAL INCOME = £7,900
Rental yield shows you: “what % of £103,000 is £7,900?”
To show the rental income as a percentage of the property price, you divide it by the property price and multiply the answer by 100.
So, £7,900 = 7.7% of £103,000
RENTAL YIELD = 7.7%
But… why does this figure matter? Why should an investor know what their annual income is as a percentage of their investment?
Think about it: it tells you how much your property pays you back every year.
The higher the rental yield, the more money you are being paid back every year. Your property is paying you back quicker.
A property with a 10% rental yield is paying you back 1/10 of your investment every year.
Now that you know exactly what rental yield is and what it’s for, check out our fantastic rental yield calculator.
Get in touch if you’d like us to send you the tool – completely free - as a pdf.
What did you think of this post? Is there any other property jargon you’re not sure about? Let us know by emailing firstname.lastname@example.org and we might just tackle it in a future article!