How to increase your Rental Yield – seven simple ideas that won’t break the bank
How to increase your Rental Yield – seven simple ideas that won’t break the bank
Being a landlord has never been easy. Even if you are a non-professional (part time) landlord, you still need to consider your rental property as both an investment and valuable source of income that will always need varying levels management – even if you’re using all the services of a letting agent.
Demand for rented accommodation has been increasing since even before the current pandemic. In March 2021, Spareroom reported a surge in demand for rental accommodation across the whole of the UK except for London which was down by up to 43%. In 12 key towns and cities rental demand has increased by over 50% year-on-year.
However this is being balanced by the state of the economy and peoples’ personal financial positions being in a much more precarious state. Landlords are seeing this manifest itself in the current rent debt crisis with rent arrears endemic across the country.
All of a sudden, landlords have a lot more to think about. A greater degree of involvement and careful planning is necessary if you want to see positive returns and satisfactory rental yield from your investment.
What does rental yield mean?
If you’re an experienced landlord you should be familiar with the term rental yield and why it’s important. If you’re not familiar with the term, simply think of rental yield as the annual financial return you can expect to achieve on a rental property.
It’s expressed as a percentage and is worked out by diving the annual rental income by the current value of the property and multiplying that figure by 100. The higher the percentage, the better the return on investment.
The ideal conditions for high rental yields is a property in good condition, that’s situated in an affordable area with high tenant demand and good average rent prices.
Net yield is the yield achievable after taking into account expenses. This figure gives you a more realistic idea of whether a property is working out as a good investment.
The expenses to be taken into account could include:
- Letting agency management fees for tenant finding or on-going management
- Landlord insurance
- Rent guarantee insurance
- Ensuring compliance including up-to-date EPCs and gas and electrical safety checks
- On-going maintenance and repair including the cost of refreshing the property between tenancies
- Ground rent if the property is leasehold
- Void periods in between tenancies where a house is vacant and you are not collecting rent and also possibly having to pay council tax
- Mortgage repayments
Some of these expenses will not be fixed and will need to be estimated (and budgeted) for.
What is a good buy-to-let yield to aim for?
At a basic level, you’ll need to be earning at least enough to cover all your outgoings and ideally enough to build up an emergency fund on the side should any unforeseen problems arise.
Rental yields can vary widely even within the same area but anything over the UK average can be considered to be over performing.
Figures from Seven Capital in their UK 2021 Market Forecast reveal that the average UK yield currently stands at 3.53% with London properties averaging at 2.83%. However the figure for London in particular is likely to be challenged by the current exodus of tenants and the increased level of rent debt being experienced in the capital.
Ultimately, you’ll need to weigh-up the financial requirements of a property and the characteristics of the local market to give yourself an idea of what to aim for.
Seven simple ideas to increase your rental yield that won’t break the bank
1. Re-assess your rent
Increasing your rent is the most obvious way to increase your rental yield, but it’s not a decision you should take lightly – especially in the current environment. You’ll need to be able to justify an increase based on the local market or changes made to your property and do so without deterring your current or future tenants.
Using platforms like Zoopla, it’s easy to conduct your own research online to establish rents for similar properties within your area. But be aware – if you charge too much you could be deterring good tenants potentially leading to longer void periods in between tenancies. But if you’re charging too little, you could be missing out on fair rental income.
Developments such as new schools or better transport links can drive up market prices, so it’s a good idea to keep your finger on the local pulse.
It’s more difficult to increase your rent if a tenant has already signed a contract, but a rent review clause could allow you to propose rent increases at set intervals if not at the end of the current tenancy term itself.
2. Review your outgoings
Stop spending on letting agency management
Almost everyone is currently assessing their outgoings whether in their personal life or in business.
If you are using a letting agent to fully manage your property you could save yourself at least 8-15% (depending on what your letting agent is charging you) of your monthly rent by going down the self-management route.
Self-managing your property might feel a little daunting if you’ve not done it before, and it may not be suitable for everyone. However, an estimated 50% of UK landlords already forgo the services of letting agency management according to a 2017 survey by Homelet. It’s a great way to significantly increase your rental yield.
There is a wealth of free advice out there to guide landlords. Plus there is the recent advent of low cost property management software that is suitable for private landlords as opposed to professional property agents.
RentiD for example is intuitive for both landlords and tenants to use and can help you streamline the jobs you’ll need to keep on top of as a landlord.
Shop around with your insurance
It’s easy to let buildings insurance automatically renew year upon year without paying too much attention to the costs. Like most people and their car insurance for example, it pays to shop around every year for a better deal helped by the wealth of price comparison sites out there in the market.
And your buy-to-let mortgage
With less frequency, the same will apply to what is probably your biggest outgoing: your buy-to-let mortgage. However at present, mortgage options remain scarce compared with before the pandemic.
According to Which? The number of fixed-rate buy-to-let mortgages has dropped by 35% since the start of March, with 1,535 deals available as of October 2020. Borrowers with the smallest deposits have suffered the biggest cuts, with the vast majority of 80% mortgages and all 85% deals being withdrawn.
Less choice isn’t always bad news for borrowers. Buy-to-let mortgage costs have only increased slightly since the lockdown. As of October 2020, the average rate on a two-year fixed-rate deal was 3.1%, compared with 2.9% at the start of March. On five-year deals, the rise has been smaller still, from 3.39% to 3.56%. This still may be better than your current deal if you arranged it three to five years ago and you’ve got a lower Loan To Value (LTV) percentage now.
It’s always a good idea to keep your rental property looking its best in order to keep attracting tenants while justifying the price of your rent and avoiding empty periods. Peeling paintwork, damaged doors or cut-up carpets won’t go unnoticed.
If things are looking particularly outdated, giving your property a total refresh could allow you to increase your rent, get vacant properties let quickly and grow your yield in the long run.
4. Cater to the new world of homeworking
By setting your rental property up to cater towards a specific target audience, you should be able to attract tenants who are willing to pay a little more rent to enjoy the lifestyle they desire.
Remote working is not only on the rise, it will continue to be the norm for a great many office based workers as the pandemic has accelerated the home working revolution and encouraged many companies to consider scaling down their office based operations permanently.
This has in part driven the ‘London exodus’ with tenants looking for increased home working space and greener local environments for their money now they are less constrained by the demands of the daily commute.
Designated spaces to work (perhaps a small spare bedroom re-imagined as an office) and the installation of high speed internet can easily be planned into your rental without too much fuss and expense.
5. Allow pets
Currently, just 7% of private landlords advertise pet friendly properties, meaning many people struggle to find suitable homes. In some cases, this has meant people have had to give up their pets all together.
With figures showing that more than half of adults in the United Kingdom own a pet and many more welcoming pets into their lives during the pandemic, these changes mean more landlords should be catering for responsible pet owners.
Even though the Government is trying to address the issue of blanket bans on pets by landlords through its Model Tenancy Agreement (note these are recommendations – not law just yet), judging by what you can still read on many landlord and tenant forums, many landlords are reluctant to rent to tenants with pets.
So to get more interest in your property and command better rent, clearly state your property is pet friendly.
You can mitigate risk by insuring you have a professionally compiled inventory at check-in and that you conduct regular visits and stay on top of maintenance issues. Although you cannot insist that the tenant pays for professional cleaning when they vacate, you can say that the property must be returned in the state that it was at the beginning of the tenancy and deduct from the deposit if necessary.
6. Aim for long-term lets
If you’ve got a great tenant already, why go to the trouble and expense of finding a new one?
While short lets may give you more flexibility in taking your property back, long-term letting is the way to go if you want to maximise your rental yield. Keeping tenants around for longer will help you to avoid vacant periods where you aren’t collecting any rent, while reducing the costs and fees associated with finding new ones.
Once you find a tenant that you’re happy with, it’s important that you maintain a direct, positive and responsive relationship with them so that they don’t want to leave when the current term comes to an end. Long-terms lets are another way to significantly increase your rental yield.
7. Keep up-to-speed with legal changes
Regulations surrounding rental properties are constantly changing and the price of failing to comply could significantly eat into your income.
It’s really important to keep abreast of updates to ensure you’re fulfilling your responsibilities as a landlord while staying on the right side of the law and avoiding any unwanted fines.
Information and guidance is available from the Government website here and associations like the National Landlords Association (NLA), the National Residential Landlords Association (NRLA) and the British Landlords Association (BLA).
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Conclusion – how to your increase your rental yield – seven simple ideas than won’t break the bank
Your rental property is both an investment and a valuable source of income that will always need varying levels management – even if you are using an agent to manage it for you.
As such, it’s important to understand and be comfortable with your rental yield to ensure your investment continues to be a good one.
By following our recommendations and staying in control you can increase your rental yield without breaking the bank.
With RentiD and our property management software and letting agency services on demand, you can save time, money, hassle and risk.
If you are looking to review your buy-to-let mortgage then RentiD recommend Life Mortgage Solutions because of their bespoke approach and expertise across all mortgage types for every stage of life.
With a combination of mortgage advising and mortgage underwriting experience, The Life Mortgage Solutions team are equipped with all the right tools to ensure that you receive the best and most suitable advice based on your circumstances. Life Mortgage Solutions Limited is authorised and regulated by the Financial Conduct Authority.
Finally, when you need to conduct scheduled maintenance, emergency repairs or prepare properties for new tenancies, All in Maintenance can provide reliable, skilled and fair contractors across the UK. RentiD have selected All in Maintenance as our recommended maintenance partner due to their commitment to providing the highest levels of quality and service to our customers.
For our other Intelligent Partners click here.