What rental yield can I achieve on my property?
‘Rental yield’ is probably the most important measurement in residential investment property. It is an indication of the level of return on an investment and is calculated by expressing a year’s rental income as a percentage of how much the property cost to buy. For example, if you buy a property for £165,000 and you achieve a rent of £825 per month, then your gross yield will be 6%.
The ‘net’ yield takes account of fees, repairs and running costs such as service charges, maintenance costs, building insurance etc. Technically, you should also factor in the first year’s acquisition costs, such as agent fees, Stamp Duty and solicitors’ fees, as well as furnishing costs.
On average, you can expect a gross yield of around 4-5% for lower-value properties in Oxfordshire. The higher the outlay the lower the return as rental value does not necessarily keep pace with house price inflation. Put more simply: if you pay £1 million for a property, you should not expect a 5% return on it.
Immediate gross yields tend to be higher outside Oxford, but the capital gains – arguably many clients’ first reason for investing – have been stronger inside the Oxford ring road. Ultimately, the success of an investment is about the combination of rental yield and capital gain on the property. The Oxfordshire annual house price increases have generally been above the national average due to the buoyant economy and shortage of property – basic supply and demand.
If you buy what is appropriate for the area and your target market, then this should encourage a good return.
Note: rental yields change constantly. Take advice on any prospective investment.
This is one of the 50 most asked questions in our new book: Landlord Intelligence.