How much can you earn as a property investor?

Becoming a property investor and being a landlord can prove to be a fruitful and lucrative investment… as long as it's done correctly. Working out how much you can earn as a property investor depends mainly on how much rent you’re going to charge. Simple enough? Think again. In this Wards guide for property investors, we’re going to tell you how to calculate rental rate and what is a good yield on a property in the UK, as well as some other useful need-to-knows…

Short-term investment vs. Long-term investment

If you’re serious about making money as an investor, then one of the best things you can do for your portfolio is to diversify and own as many different assets as possible. This means having a mix of long and short-term ventures. Long-term investments, such as buying a rental property, are generally anything you’ll have for over a year, whereas a short-term investment is something you’ll allocate money for less than a year.

When considering long-term investments, property is one of the best assets you can own to secure a fruitful enterprise. But, how much can you earn as a property investor? Well, that’s indeed a very good question...

Though they tend to be more volatile due to their dependency on the financial market and interest rates, long-term investing in a home is always going to be a sound venture because there’s a demand for housing. Put simply, whether buying or renting, people need somewhere to live and you’ll have a commodity that’s in high demand. As such, you’ll always be able to make money from it – especially if your rental rates are competitive.

What’s more, when the time comes to sell, one would hope that interest rates are good, the economy is strong and that the capital appreciation of your property will top up your overall return.

What is capital appreciation?

Since the slump of 2009, after the Credit Crunch, Gov.uk report that the average house price has gone from £154,452 to £225,047, which is a 46% increase in less than a decade. Capital appreciation is the increase in the value of a particular asset, and in the case of property, it’s how much money your house as increased by over a set period. The benefit of capital appreciation is that the gains generally happen without you needing to do very much.

How much should I charge for rent?

When it comes to working out rent, you can’t just pluck a figure from the ether and charge whatever you like, as tempted as you might be. We appreciate that there are outgoings like tax and letting agent fees to consider – not to mention a mortgage if you have one – but the rent you charge must be fair and competitive, especially if you want to turn a profit.

One option is to manage your home through a letting agency. They will have the benefit of knowing the local market and steer you in the direction of a good rental income. If you want to know more or you’re looking at going alone, then let’s look at…

How to work out rent

First, let’s take a moment to assess your rental home on a really top-level basis and look at the factors that might determine your potential rental income. The key things determining the rent you charge will be based on…

Location

Larger towns and cities bring in higher rents, but the cost of property tends to significantly higher, meaning that you may need a proportionately bigger mortgage.

Furnishings

You can charge more rent for supplying furniture. Just bear in mind that while this will be appealing to some tenants, many may see this as a negative feature and will be put off.

Amenities

What’s on offer in the area? Good schools, shops, and great transport links, plus good recreational facilities like cinemas and leisure centres can all demand higher rents.

Desirability

This all comes down to how appealing your property is and knowing your prospective tenant. The décor – is it modern and clean? How big is the property and how many bedrooms does it have? Does the property pose any barriers for specific living requirements and accessibility needs, such as lift access to the flat? These all make for desirable features that potential tenants will consider.

The estate agent helping you with your buy-to-let venture can steer you through what makes for a good rental investment. Wards will even accompany you to viewings to help you decide if this is a sound investment. But even with these in mind, there’s still more to contemplate. If you going to turn a profit, you need to work out your rental yield.

What is a good yield on a rental property in the UK?

In October 2018, Homelet produced a report which highlights the average rent in the UK as £928 per calendar month – take London out of the equation and the figure drops to £768. The average rent in the capital now stands at £1,619 a month and at first glance, you might assume that London is the most profitable place to be a landlord – you would assume incorrectly. Rent does not equal profit.

In order to make money, you’re going to need to consider rental yield. Rental yield is the measure of how much profit you can make from the property. With renting a home, rental yield is the percentage of income against the property’s value.

There are two types of rental yield, which we’ll break down now.

Gross Yield

You could use our rental value calculator to work out your gross yield – it’s the simplest and most common figure you’ll see or hear. It can be worked out by using the following equation:

Rent x 52 (weeks in a year) ÷ Property value = Gross Yield

Net Yield

The net yield, on the other hand, is the one you'll want to pay most attention to. Especially if you plan to turn a profit. Net yield is the money left over after all of your expenses relating to the rental home, like letting fees and insurance have been deducted – demonstrated in this equation:

Net yield = (weekly rental x 52) – costs ÷ Property value x 100

Many have fallen prey to not working out their expenses and this could be one main reason first-time landlords fail. A good rental yield on a property in the UK would, therefore, be anything left over after you have paid your outgoings. Generally speaking, you’re looking at wanting a rental yield of 4% and more in order to make your investment worthwhile.

Becoming a property investor is a full-on commitment and one that needs to be taken very seriously. You’re going to be in it for the long-game, meaning that you must be prepared to part with your initial collateral for many years in order to truly benefit from it. This means that it can’t be withdrawn or dipped into at short notice. If you’re comfortable tying up your money and letting it tick over, then property investment sounds like a positive move in building your portfolio. Of course, you can get in touch with us or go to your local branch for more help and advice, but good luck and happy investing!

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