7 Ways to Increase Rental Yield
Published on May 30, 2020 by Paul Cassar
Rental yield, alongside capital appreciation, is a vital consideration for any landlord. Rental yield dictates whether an investment will be a sound one, and is a crucial factor for lenders when deciding on affordability for a buy-to-let mortgage.
What is rental yield?
In short, rental yield is the profit you get when you rent out a property. It’s calculated by dividing your annual rental income by the total value of the property. The total value includes the initial purchase price, plus any improvement costs you’ve already amassed or will expect in the future.
Yield can be calculated as gross or net. Gross rental yield does not include typical running costs and this is what mortgage lenders usually refer to.
Here’s how to calculate rental yield of both types.
What buy-to-let yield should I aim for?
Rental yields can vary widely throughout the country and even within the same location. You’ll need to be earning at least enough to cover all your outgoings, and ideally sufficient to accumulate an emergency fund to take care of any unexpected expenses should they arise.
Average rental yields for 2019 stood at 4.5 per cent for the UK in general, and at 4.1 per cent for London, according to Kent Reliance. University cities however tend to command higher yields according to the Totally Money buy to let yield map, ranging from 9.79 per cent in Liverpool to as much as 11.99 per cent in Nottingham.
7 ways to increase rental yield
The financial requirements of an individual property and the specific market features will help you work out what to expect. Generally though, there are various ways in which you can grow your return on investment and boost your buy to let yield. Let’s take a look.
1. Review your rent
Increasing the rent you charge your tenants is the most obvious way to increase your rental yield, although it’s not always the most commercially viable way forward. You’ll really need to consider whether an increase can be justified. If the local market makes it feasible, or you have recently made improvements to your property, then it might just work out. But what you don’t want to do is put your current or future tenants off by pricing your property out of the market.
A letting agent will help you set a reasonable value on your rental rate. Keeping up with local developments is also a good idea. Investment in local transport, new schools and amenities will all make an area more desirable, which will support higher rental rates.
If you have already set your rental rate and your tenant has signed, it’s not usually possible to up the figure charged, but a rent review clause in your tenancy agreement will allow you to propose increases at set intervals.
2. Examine expenses
A review of your expenses can often have a significant impact upon your bottom line as a landlord.
Start by looking at all those things that tend to auto-renew without you giving them a second thought. Whilst you may feel you’re too busy to shop around for better deals, a little time invested can really make a difference to your profit margins. Insurance is a prime example; there are so often many better deals out there that could lead to considerable and sometimes surprising savings, so it is well worth setting aside some time each year ahead of your renewal dates to see what you can achieve.
It’s also worth looking at your buy to let mortgage. New products are constantly being introduced that could net you some savings or at least provide you with more flexibility. Shop around is the key message here.
3. Update and upgrade
Higher spec properties always tend to command a greater rental rate which will have a positive effect on your yield. What’s more, a freshly updated home is more likely to attract a better class of tenant who will keep the property in better condition, meaning less outlay when the tenancy ends. Void periods are usually also reduced when a property is decorated and maintained to a higher than average standard.
4. Extend your property
If you have the space, adding a bedroom to your rental property usually means you can charge a higher rental rate.
There are various ways to add a bedroom. You could extend outwards if you have sufficient space, or upwards into the loft if that’s a viable option. If extending isn’t feasible or desirable, or the numbers just don’t work out when you look at investment versus return, there are easier ways of creating another bedroom to your property that you may wish to consider.
Some properties have more than one living room for example, which could be converted into a bedroom. If you have a particularly large master bedroom on the other hand, it could be worth thinking about splitting it into two separate rooms.
5. Consider an HMO
A house in multiple occupation (HMO) is worth considering if you really want to maximise your profitability as a landlord. More tenants means more rent, so if you can handle the legal, licensing and practical aspects, this could be the ideal way to boost your rental yield.
Whilst initial investment for an HMO is likely to be quite a bit higher than for a standard property and tenant turnover is usually higher, the potentially higher return over time is definitely worth looking into. Between 2010 and 2014, HMOs delivered an average return of equity (ROE) of 108 per cent over four years, compared to 77 per cent for regular buy to let properties.
Our ultimate HMO guide provides comprehensive details on converting a property to an HMO and all the practical and legal considerations that go with it.
6. Welcome pets
78 per cent of tenants struggle to secure pet friendly accommodation, so a property that welcomes pets could be a property that attracts long term tenants, and one that can command higher rental rates.
Whilst you’ll need to take steps to make your property pet-friendly, such as installing higher fences and secure gates, swapping carpet for hard, durable flooring and going unfurnished, the fact that you are a landlord who is willing to accept tenants with pets could really make you stand out in the marketplace.
7. Go long term
The highest rental yields for regular properties tend to be those associated with long term lets. Void periods can make a serious dent in your yield, but a long term tenant will help sidestep too many of these, and the costs associated with trying to find new tenants.
Building relationships is good practice. A happy tenant will want to stay put for longer, so if you’ve found yourself a good one, be sure to keep them onside by responding quickly to any requests for repairs, being fair about any alterations they wish to make, and staying flexible in times of need.
Yield is what it’s all about as a landlord, it’s the bottom line. Maximising it is possible but obviously it depends on what you are able and prepared to invest.