It's a great time to invest in property. Rental Yields in the Midlands are around 4% to 8%. In addition there is capital growth currently running at 3% to 6%. This gives total gross yields of around 7% to 14% before tax. There has never been a better time to invest in property; few other investments can come close to match it.
- Property Type
Buy a modern property preferably up to 5 years old. Maintenance will be minimal. If you are intent on an older property find one that has been refurbished.
- The Area
Choose a property close to amenities not one that is in the most desirable part of town. Tenants look for proximity to shops, transport and amenities; they prefer the town centre to the suburbs.
- Purchase Price
Buy cheaper property rather than the most expensive, the rent as a percentage of price falls the higher up the price band you go. The ideal price in the Midlands is about £125/150,000
- Price Increases
Look at properties that are sure to go up in value. You often find when the market dips flats and maisonettes can be more difficult to sell. If it’s a house buy freehold, leasehold houses become difficult to sell once they pass a certain age. As well as rental income you want capital appreciation although this will be subject to Capital Gains Tax.
Make sure you know what is happening in the surrounding area. Motorways, High Speed Rail, Industrial Parks, etc will have an effect on value in the future
Know the likely rent. It will need to cover mortgage, insurance, management, maintenance and possibly other charges. Remember, mortgage rates can rise. If you are looking at flats check the service charge. See below to understand yield.
When arranging the mortgage try and fix the rate for as long as you can. If rates do rise there is a chance the rent will have risen as well. Make sure you are told all the costs; there are often large arrangement fees.
Carefully check the tenant, (credit score them), check for credit history and CCJ’s and their past record. You need to be as certain as you can they will pay the rent
- Property Type
Take out rent and legal protection insurance. It is quite rare the tenant stops paying the rent but they may lose their job and it does happen. If you have a mortgage you will still need to pay and you may need to get the tenant out then.
10) Building Cover
Make sure you take out landlords insurance on the buildings. If the tenant has a fire you need to be covered and an ordinary household policy will not cover you.
To calculate the yield on a property, divide the net rental income per annum by the total cost of purchase i.e.
|Yield = net rent divided by gross purchase price £7100÷£151,200 x 100 = 4.7%|
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