As a rental property owner, maximising your rental yield is key to ensuring a profitable investment, and while there are few factors that can impact rental yield, including location, property value, and demand, there are several strategies you can implement to improve your rental yield. It may involve spending some money on the property, doing a little research, and working a little harder, but in the long term, implementing these strategies can not only help you increase your rental yield, but also attract desirable tenants, improve your property value, and reduce your expenses.
Rental yield refers to the return on investment generated by a rental property. Essentially, rental yield is the amount invested in the property versus the rental income received. It is an important metric to property investors and landlords, who use it to help them determine the viability of a potential rental property. High rental yields indicate a property that generates a substantial amount of rental income relative to its value, while a low rental yield will often indicate a poorer investment, or an overpriced property. Understanding this metric is how landlords and property investors make wise decisions.
To calculate the GROSS rental yield, first divide your annual rental income by the property’s purchase price plus any renovation or refurbishment costs, then multiply it by 100. The percentage you are left with is your GROSS rental yield. This figure should always be enough to cover the mortgage fees, any maintenance costs, and other unforeseen overheads, while delivering a reasonable profit margin, or NET rental yield. Any figure between five and eight percent is generally considered to be a good yield for landlords to aim for, but landlords must be proactive in implementing strategies to maintain this figure, and to grow it, thereby keeping their investments profitable.
Here are a few methods for increasing your rental yield:
Review your overheads:
The first, and arguably the best, place to start when considering methods to improve your property’s rental yield is reviewing your overheads. These can be fixed monthly costs like your mortgage fees or insurance premiums, and more ad hoc expenses such as maintenance issues. Each one reduces your rental income; however, you must not sacrifice the quality of the property if you wish to have a more profitable rental yield. Investing in energy-efficient appliances and insulation can reduce utility bills, while regular maintenance and repairs can prevent larger, more expensive problems from occurring. Obtain multiple quotes from insurance providers to find the best deal for your property, shop around with reputable local mortgage advisors to see if a better deal can be negotiated on your buy-to-let mortgage. Working with lettings agencies can also reduce your overheads, and your stress.
Increase rent:
Arguably the simplest, most straightforward method to boost your rental yield is raising the monthly rent on your property. However, it is essential you strike a balance between maximizing your income ensuring that your property remains competitive in the local market. It may not always be possible to increase the rent and remain competitive, as market fluctuations can mean you may be overcharging your tenant as easily as undercharging them. A rent review clause in the tenancy agreement permits you, or a lettings agency acting on your behalf, to periodically review your property’s monthly rental figure against similar local properties on the market and adjust the figure accordingly.
Invest wisely:
Investments require research, hard work, and dedication. Nowhere is this more apparent than in the property management sector. Investments should be made carefully, strategically, with factors such as the property’s location, its proximity to local amenities and travel networks accounted for in your decision. High-demand areas, such as universities towns and cities, or major employment hubs also provide a steady stream of renters and income, albeit with a higher turnover should the property be converted to an HMO (Houses of Multiple Occupation). Rental values can also be increased by major infrastructure projects in the region, such as HS2. These projects offer the prospect of new jobs and skilled work, increasing the capital growth for the region and the prospects of local inhabitants. This will attract new renters to the region and help increase the value of your property. It is equally vital you have a solid understanding of the local rental market and choose a property with manageable maintenance and upkeep costs, especially for new landlords still establishing themselves.
Long-term Tenancies
Once a property is purchased, and a tenancy has been agreed, maintaining a good relationship with the tenant, being considerate and responsive to their needs can lead to long-term tenancies, which means a steadier income stream. This is one of the best methods to increase your rental yield, as it means there will be none of the one-off costs that are involved with a high tenant turnover. They are also more likely to treat the property with care and respect, as it can be a more permanent home for them. Diligence with your tenant referencing process, scrupulous property maintenance, as well as fostering good relationships with tenants can all lead to long-term tenancies.
Refurbish your property:
The condition of your rental property should always justify any increase in rent, and refurbishing or redecorating can help significantly. Refurbished properties can be marketed as a far more desirable living space. Refurbishment creates a more valuable and competitive market asset, leading to higher potential occupancy rates, increased competition, and a reduction in vacancy periods that allows you to charge a higher monthly rent. This can also help establish long-term tenancies, as updating and improving the property and its amenities will show your tenants you care about them, encouraging them in turn to treat the property with more care and respect.
Though not all landlords have the option, if the space is sufficient, increasing the property’s overall living space can increase the rental yield. Converting the loft into a bedroom, for example, or adding a garden veranda or an extension creates additional living space and more rentable rooms.
Allow Pets:
People love their pets, it’s a fact, and allowing them into a rental property can be a smart move for landlords looking to improve their rental yield. Firstly, it opens the potential market of renters who own pets, or are considering pets, increasing interest and competition for the property. Pet-friendly rental properties often command a higher rental price as tenants are willing to pay a higher price for the convenience of keeping their furry family member with them. It can also lead to longer tenancy periods, as tenants are more often committed to finding and remaining in a home where they can comfortably coexist with their pets. By allowing pets, you can not only increase the rate of income on your property, but potentially reduce the vacancy rates for it, a win-win for both landlord and tenant.
Improved Energy Efficiency
Rising energy costs have been at the forefront of people’s minds for a while now, and finding ways to reduce energy costs and improve efficiency are becoming more important. For landlords, improving the energy efficiency of your property is another way to increase your rental yield. Firstly, properties that are energy-efficient will have lower utility bills, a fantastic selling point for potential tenants that allows the landlord to charge a slightly higher rental figure without creating too much of a financial burden for the tenant. Secondly, energy-efficient properties are often more comfortable, with better insulation, ventilation, as well as heating and cooling. This can lead to higher tenant retention rates, meaning fewer vacancies and an increased income for the landlord. These properties can also attract more environmentally conscious tenants, who may be willing to pay a premium for a property that aligns with their values.
Conclusion
In conclusion, it is clear to see there are multiple methods for improving rental yield, and a property’s profitability. These include updating and renovating the property to attract tenants, adjusting rental prices to stay competitive and reflect market trends, and exploring ways to reduce expenses without compromising quality. By taking a proactive approach with your property, and implementing one or more of these potential strategies, you can optimize your rental yield and maximise the return on your investment in the long run.
