Are you considering renting a property? If so, one of the key indicators of whether it’s worth the investment or not is rental yields. Rental yield measures the annual rental income as a percentage of the property’s purchase price. But what makes a good rental yield in 2024, and what can influence this figure?
Here, the team at Shortland Horne explores rental yield in more detail.
What does rental yield mean?
Before we kick off, it’s worth diving deeper into what rental yield is. In short, rental yield is the annual rental income of a property divided by its value. For example, if a property is purchased for £200,000 and generates £10,000 annually, then the rental yield would be five per cent.
As such, the higher the rental yield, the better the investment. It’s worth noting that rental yields are different from rental income.
Why is it important to calculate rental yield?
Rental yields are critical because they offer a snapshot of cash flow potential, which is essential when considering factors like mortgage payments, maintenance costs, and other expenses.
What is considered a good rental yield?
In 2024, a rental yield of five to eight per cent is considered to be a good investment – with anything between six and eight per cent deemed ‘very good’. Anything below five, and you might struggle to make any return on your investment. Of course, it’s worth noting that a rental yield that is too high – for example, nine per cent or above – is likely to be unsustainable.
What factors can impact rental yields?
When assessing rental yields, it’s worth considering the following:
- Location
Rental yields vary depending on where the property is based. Properties in popular, high-demand areas can command higher rental values, therefore giving you a better rental yield.
If you are looking at buying a property to rent, consider the location’s long-term potential. For example, it’s worth exploring the area’s transport links, schools etc. - Market conditions
It’s no secret that the property market is continuously fluctuating. The state of the property market can have an impact on rental income and therefore, the rental yield. - Rising interest rates
One of the most significant challenges that landlords face is the rise in interest rates. With higher mortgage rates, financing costs for investors have increased, which, in turn, impacts overall return. This means that those borrowing money to purchase a property might see lower profit potential. - Running costs and maintenance
Maintenance and cost of running a property can be expensive. Landlords and investors must account for the cost of maintaining their property, which could eat into rental yields.
What should you look for if you are investing in a property?
If you are considering renting a property in 2024, you need to consider more than just the percentage return. Investors need to carefully consider other influencing factors like location, market stability and profit potential.
For those aiming for a safe, long-term investment, properties with a yield between five and six per cent in stable, high-demand areas are often the best option. If, however, you’re comfortable taking on slightly more risk, then yields of seven or eight per cent in emerging locations or less expensive areas have the potential for a greater profit.
Speak to the experts at Shortland Horne
If you’re thinking about investing in a property to rent, then get in touch with the experts at Shortland Horne. With the economy constantly changing, so are rental yields. Our friendly team are on hand to support landlords throughout each step of the process. Contact us today.