Funny isn’t it? Making a nice living from a buy-to-let investment should be very straightforward. Buy a property. Rent it out for more than the mortgage. Laugh all the way to the bank! Easy!
If only it was that simple… But it is a bit more involved than that and you need to be sure you get your sums correct right from the start. Because the real key to successful property rental is yield. It’s the most important part of the calculation.
Forget capital growth. Sure that may happen, and probably will in the longer term, but from day one yield is the figure that matters. You can never guarantee capital growth but you must get your return-on -investment (ROI) correct. Get that wrong and everything else fades into insignificance. So how do you ensure the correct yield?
Well it’s not just about the cost of the mortgage repayments. All mortgages have on costs – arrangement fees, admin fees, set-up charges. Take these into account because they all affect the yield you will obtain. You can do some basic calculations by using an online calculator like this one http://www.yield-calculator.co.uk/ and that will give you a ball-park percentage figure for possible returns.
But that’s only part of the story. You also need to factor in maintenance costs, insurance, lettings fees and most importantly those dreaded rental voids between tenancies. As a rough guide it is sensible to estimate your annual rental return as being just 10 months rent. Of course if you get a full 12 months’ rent paid then it’s a bonus.
And how much of the work involved with property rental do you intend to do yourself. If, for example, you’re the one who will pop round and mend the washing machine when it breaks down, or repaint the lounge when it’s getting a bit scruffy, then you have to factor in your time or calculate the cost of someone else doing the jobs. Always best to have a contingency plan in place when it comes to potential costs. Have you bought a property locally and so are available to deal with such issues or is your buy-to-let property 200 miles away? Take all these things into account. Because they all potentially alter the yield that you will get on your investment. And finally, don’t forget the purchase price! Haggle hard because the less you pay the better your yield should be.
So it is important that you take all these factors into account. Or you could of course let us do it for you. It’s all part of what we do at CXG to ensure that you get the very best return on your investment.
Give us a call now for an informal chat or register your interest to hear how, with our help, you can join the world of property investment and get the right yield every time.