Calculating Profits
16 June 2016
16 June 2016,

When searching for buy-to-let property for sale, it’s important to bear in mind that you’re essentially seeking out a house that offers two profit streams – rental yield and capital growth.

Rental yield is what you’ll make each month from your tenants. Capital growth is your longer-term investment potential – and is equally important. If you’re thinking of investing in property in the UK and you want to work out your ROI potential, here’s a guide to help you.

Property Investment Opportunities – Working Out Rental Yield

Your rental income is the amount of money you receive each month from your tenants. However, this doesn’t equate to pure profit. As a landlord, you’ll need to invest money into your buy-to-let property for sale, which must be taken into account when working out net profit for the year.

Typical things you’ll need to spend money on include:

  • Agency fees. If you use a letting agency to find tenants or manage your property, you’ll need to pay them a fixed fee.
  • Insurance premiums. The exact amount you’ll have to pay in insurance depends on the type of property you invest in. However, you can typically expect to pay around 2% to 3% of the rent.
  • As a landlord, it’s your responsibility to maintain your property to the right standards – and of course, this costs money to do so. Worn-out fixtures and fittings must be replaced, and repairs must be made in a timely manner. On average, expect to spend around 10% of the total rental income on maintaining the property.
  • Ground rent / service charges. If you’ve invested in a leasehold property, you’ll need to set aside some funds to pay ground rent and service charges. Exact costs vary considerably, so make sure you find out how much you’ll owe before committing.

When calculating rental yield, remember that your property might not always have tenants – and may stand empty for a period of time. Of course, it’s difficult to predict if and when this might happen. However, a letting agent should be able to give you an idea of rental trends in the area – which will help.

Predicting Capital Growth

In addition to generating a solid rental income, your buy-to-let property for sale will also be generating a longer-term form of profit, in capital growth. Capital growth is not guaranteed, and depends largely on the property market at the time; but given that house prices continue to rise across the UK, it looks likely that your investment should yield good returns in the future.

To get an idea of capital growth potential, it’s worthwhile talking to a specialist property investment agent, who will have in-depth insight into the market, and who will also offer insight into price trends and predictions for future returns.

The Buy2Let Shop Limited

If you’re looking for buy-to-let property for sale, and want help with finding the right house for your needs, talk to The Buy2Let Shop. We’re experienced property investment agents in London, and we’ve got a wide range of property investment opportunities on our books, which aren’t available to the general public.

We also offer assistance with buying a house at auction, and hold regular property seminars for investors looking to brush up on their knowledge of the market. To find out more, simply visit The Buy2Let Shop website today.


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