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House Pennies

How to increase your rental yield

Posted on 2019-09-03

The UK rental sector has become more and more competitive in the past decade, with the number of rental properties on the market increasing by a huge 63%. When you couple this growth with the changes made to taxation rules over the past few years, it’s easy to think that being a successful landlord isn’t as easy as it used to be.

There are still lots of great opportunities out there, however, and focusing on how to maximise your rental yield is one of them. From reviewing the local rental market to trimming your outgoings or catering to changing tastes and lifestyles, below we’ll suggest 10 ways you can get more out of your investment.

But first, let’s take a closer look into what your rental yield is and what some of the different terms around it mean to understand what you could be aiming for.

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 a little newer to the market or looking for a refresh, simply think of your 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.

Alongside capital appreciation - how much a property has or is likely to increase in value - rental yield is a key factor you can look at to assess whether a buy-to-let property is a good investment. The ideal conditions for high rental yields is a property in good shape, that’s situated in an affordable area with high tenant demand and good average rent prices.  

Gross yield vs net yield

Gross yield is the yield achievable on a rental property without factoring in the expenses associated with running it.

Sometimes known as true yield, net yield is the yield achievable after deducting these expenses. This figure may give you a more realistic idea of whether a property could be or is working out as a good investment. You’ll want to factor in outgoings such as:

  • Landlord insurance
  • Rent guarantee insurance
  • Repairing/replacing broken fixtures and fittings
  • General maintenance costs e.g. servicing your boiler, repairing fences etc
  • Ground rent if the property is leasehold
  • The cost of refreshing the property between tenancies
  • Empty periods where you are not receiving rent, known as ‘void periods’
  • Letting agent fees for marketing, property management, tenant referencing etc.
  • Mortgage or loan repayments 

Some of these expenses – such as general maintenance costs – are more difficult to estimate than others. Consider the type, condition and contents of your property to help you establish a ballpark figure.

 

What is a good buy-to-let yield to aim for?

There’s no magic percentage to target, and rental yields can vary widely even within the same area. 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 crop up.

Research published by Kent Reliance in July 2019 showed that average yields have increased in recent years and now stand at 4.5%. London properties are typically more challenging but have also seen their rental yields increase, averaging at 4.1% overall.

There are lots of opportunities out there for higher yields however, with Totally Money identifying university cities as a buy-to-let safe bet. Properties in Nottingham’s NG1 postcode command an average rental yield of 11.99% for example, while properties in Liverpool’s L7 offer yields of 9.79%.

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 you can expect. Thankfully, there are several ways to grow your return on investment on a rental property.

 

Ten ways to maximise your rental yield

From minor alterations to significant undertakings, there are several things you can do to try and increase your rental yield.

While it’s unlikely that every single idea discussed below will be suitable for your rental property, or the local market, there’s a good chance one or more could help you boost your numbers.

1. Re-assess your rent

Upping your rent is the most obvious way to increase your rental yield, but it’s not a decision you should take lightly. 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.

You could book a valuation with a letting agent to assess whether you’re charging more or less than the going rate for a property of your type and standard in the local area. If you’re charging too much you could be deterring good tenants, 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.

2. Review your outgoings

Just as it can help in your day-to-day personal life, reviewing your outgoings as a landlord can make a significant difference to your financial outlook. It’s easy to let expenses, such as buildings insurance, automatically renew year upon year without paying too much attention to the costs involved, but you may find that you could find a better deal elsewhere.

Your mortgage is likely to be your largest outgoing. The mortgage market is constantly changing and evolving with fluctuating rates and new products, and your needs may also change over time, so make a point to shop around before you commit to anything for your buy-to-let property.  

3. Consider a house in multiple occupation (HMO)

HMOs are properties rented by three or more tenants that share facilities but aren’t part of the same household. In many cases a HMO is the most profitable type of rental property as they allow you to collect rent from a higher number of tenants.

HMO

There are a number of practicalities that you will need to consider before deciding if a HMO is right for you, however. There may be a significant initial outlay involved in converting your property into one suitable for multiple parties, you’ll probably need a government license, and your tenant turnover is likely to be higher.

Read our guide on how to convert a property into a HMO if you think this option could be a viable way of increasing your rental yield.

4. Add a bedroom

Again, this option will depend on the layout of your space and the potential for conversion or extension, but adding an extra bedroom could bring in extra rent while adding value to your property too. You could build bedrooms into the attic space, for example, or convert a separate kitchen and living room into an extra bedroom with one open-plan area.

Adding a bedroom will come at a cost, may require planning permission and is unlikely to be a quick and easy task. If you get it right and the demand is there, however, you could reap the rewards.     

5. Refurbish/redecorate

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 and could leave you struggling to hit targets.

Change Lightbulb

If things are looking particularly outdated, giving your property a total refresh could allow you to increase your rent and grow your yield in the long run.  

6. Cater to a specific lifestyle

People’s tastes, needs and preferences change over time, while the popularity of different areas can shift as industries rise and fall. By setting your rental property up to cater towards a specific target audience, you could be able to attract tenants who are willing to pay a little more rent to enjoy the lifestyle they desire.

Remote working is on the rise, for example, as employers become more flexible and more people opt to go self-employed. You could therefore make sure you appeal to this demographic with high-speed internet and a designated workspace.

Eco-living is also on the up, with people increasingly looking for ways to reduce their environmental impact. Going green could help you to stand out from other properties in your area, reduce your tenants’ energy bills and improve your property’s energy efficiency rating – all useful factors in increasing how much rent you can legitimately charge.  

7. Improve storage

For most people, moving into a rental property will mean having to streamline their possessions a little. Storage space can be hard to come by, particularly in smaller city-centre flats and house shares, but remains a valuable asset to have.

Assess your space and consider how you can maximise it with shelving and cabinets, and get creative in the kitchen with organisers. Built-in or sliding-door wardrobes are also a good option for making a space feel bigger, while bicycle storage could be a deal breaker for those without a car.    

8. Consider allowing pets

Flexibility is a desirable trait in a landlord, but rental properties that allow pets don’t come around often. Since the Tenants Fee Act, now landlords are unable to charge a higher deposit to cover any potential damage pet owning renters are finding their options are becoming increasingly limited.  However, allowing animals is another way to stand out in the market while potentially charging a higher rent and increasing your rental yield.   

boy dog

Bear in mind that you may need to take a few extra steps to pet-proof your property first. High fences or secure gates for example may make potential tenants feel more comfortable in bringing their furry friends along.  Your openness to pets may also vary depending on whether you’re renting out your property furnished or unfurnished, as well as whether you have carpet or wooden flooring.

9. Aim for long-term lets

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, try to build and maintain a positive relationship with them so that they won’t want to leave once their lease is up. Simple ways to do this include responding to messages quickly and consistently, being prompt with repairs and allowing a little flexibility if they want to make minor alterations.   

10. Keep up-to-speed with legal changes

Regulations surrounding rental properties often change, and the price of failing to comply could significantly eat into your income. Keeping abreast of updates will ensure you’re fulfilling your responsibilities as a landlord while staying on the right side of the law and avoiding any unwanted fines.

Checking the government website is a good place to start, while our landlord blog features breakdowns of new laws and legislations affecting landlords, which will help you to always stay in-the-know.

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