Despite this proviso, many Brits buy a property to rent out; it’s actually seen as a sensible money-generator. It doesn’t matter if it’s a single property that a couple lets out to supplement their pension, or whether it’s a property empire in a big university city, renting can be a steady source of income – but the investment has to be handled right.
Do your homework first
You need to think about the area you’ll be buying in – the city and the part of the city too – as well as thinking about the sorts of tenants you’ll be targeting. Are they likely to be undergraduates, young professionals or families? The tenants you’ll be renting to determine how much you’ll get in rent, whether there’ll be voids every summer and how much insurance you’ll need to pay, among other things.
Your homework also involves some maths. Renting is a business just like any other, so you need to work out how much you’ll take home every month and year after all your expenses.
How to work out your gross rental yield
This is calculated by dividing your total annual income from the property by the value of the property before multiplying it by 100.
Then you need your percentage net yield
This is worked out by subtracting your running costs from your total annual income, then dividing this by the property’s value before multiplying it by 100.
And finally, your annual running costs
Your running costs are your mortgage payments, estimated refurbishment and repair costs, vacant periods, the service charge and the ground rent.
As you can see, it’s not a case of sitting back and watching the money roll in… You may be tempted to set a higher rent once you see how much it all costs, but this could backfire by discouraging tenants and increasing your void periods.
The best thing you can do, if you’re planning a buy-to-let investment, is to take advice from a letting agent who knows the area well. The agent can tell you who to expect and, most importantly, how much you can expect so you know whether your plans are worth it or not.
