How can you achieve the Best Yield Rate?
For investors the question of yield forms the basis of many financial decisions and a large part of our job at Oulsnam Lettings is advising investors on the types of property that will bring in an acceptable yield for them. We will also look at potential areas where they could realise higher gross yield rates in the future and discuss each individual’s circumstances.
What are the financial factors that I need to consider before buying an investment property?
There are two main areas to focus on when researching investment property. Gross yield rates and Capital growth. These have to be balanced with the length of investment and the loan to value of any properties with a mortgage.
What is a good yield rate?
Yield rates can vary depending on the location and the number of tenants living in the property, but our team would advise that a yield of 6% or more would be favourable. As a rule, we would not encourage investing in a property where the yield rate fell below 5%, unless the buyer was looking to rent out the property in the short term, with a view to ultimately moving in themselves. This is because, generally, a yield of 5% or less would not provide enough of a margin for profit.
Currently we are seeing some strong yield areas in Birmingham, such as Bearwood and Northfield, where we are achieving gross yield figures in excess of 7%.
For long term investors capital growth will be key. This is simply the rate at which the overall value of the property increases each year.
If you are looking for greater capital growth areas such as Kings Heath and Moseley are favourable areas at the moment, however the trade-off is that gross yield rates are likely to be lower in these areas.
Achieving greater Yields
There are opportunities for landlords to see yields of greater than 6%, although these are often achieved via a less traditional letting arrangement.
For those who would consider investing in a HMO (House of Multiple Occupancy), yield rates can be as high as 12-15%, which when compared to current rates of less than 3% interest on most savings accounts is substantial.
The main consideration with HMO’s are legislative. There are a number of additional requirements for HMO’s and the penalties for failure to comply are high.
All HMO properties for example must have emergency lighting installed and maintained as well as linked fire alarms that are regularly tested and maintained. Electrical safety certificates on top of the usual gas certificates must be in place as well as other works to ensure safety standards are met. On top of the all the safety and amenity standards that need to be met a much more hands on and proactive management arrangement will need to be in place with these properties compared to a standard property let.
Once these hurdles are overcome the benefits are often much greater, so with a little extra investment, a HMO property could provide a much greater return for those willing to go the extra mile. The lettings team at Oulsnam can offer a wealth of advice and can take the hassle out of managing HMO’S.