I am interested in a property which I would let out. How do I calculate a rental yield?
Firstly ask the estate agent you are buying the property from what the property could typically be rented for each month. From this figure (Rental Income) the following costs need to be budgeted for:
1) Insurance premiums
2) Replacing fixtures and fittings
4) Ground rent and service charges if the property is leasehold
5) Void periods (when property is empty)
6) Letting agency fees
7) Your mortgage costs
Once you have deducted the above from the rental income you will end up with your net expected rental income. If you divide this into the value of the property (including all the costs associated with buying it) then you have your net rental yield.
Eg net rental income £20,000 divided by property cost £400,000 = 0.05 x 100 = 5% net rental yield
There are also websites that can help you calculate net rental yields.
3rd July 2015
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