Last year, rental prices rose at their quickest pace in four years – with average rent increasing to £794 per month. The rise (3.4% in a year) was higher than both inflation and wage growth (2%), which clearly demonstrates the continued demand for rented accommodation in the UK.
For those seeking property investment opportunities – particularly those looking at buy-to-let property for sale – this is welcome news. However, it’s important to factor in all the costs involved with being a landlord, to ensure that you’ll make a solid return on your investment.
Investing in Property (UK) to Let – The Costs
There is significant potential to make good money as a landlord, particularly if you build a property portfolio. However, in order to establish good profit, it’s important to understand all the costs involved – both with the initial purchase of the property, and with ongoing maintenance.
The Buy2Let Shop have compiled a quick check-list of costs, to help you budget more effectively.
Rental Cost Checklist
1) Mortgage. Unless you’re buying the property outright, your mortgage is likely to be your biggest cost. Most lenders will only lend up to 80% of the value of the property, which means you’ll need to find the remaining 20%.
2) Insurance. As a landlord, you’ll require specialist insurance to protect your property. Anticipate paying somewhere between 2-4% of the rent on insurance – and be aware, furnished property is more expensive to insure.
3) Fixtures and fittings. Be prepared to replace fixtures and fittings on a fairly regular basis – and presume around 10% of your collected rent will be spent on doing so. Also, make allowances for cosmetic maintenance, such as redecorating.
4) Fees. If you’re using the services of a letting agent, you’ll need to factor in the cost of their fee. Letting agents are generally a good investment, however – as they’ll focus on finding reliable tenants who are happy to pay higher rents. If your property is leasehold, you’ll also need to pay ground rent and any additional service charges.
5) Structural repair. If you buy a property in a state of disrepair (this is often the case when buying a house at auction), remember to set aside enough funds to bring the home to a suitable standard. Get quotes from builders before agreeing to purchase.
What Can You Expect to Make in Profit?
Once you’ve established how much needs to be invested and paid out throughout the year, you can start to assess how much you can expect to earn.
Every region of the country produces different average rental yields – with figures varying dramatically in some places. For example, investment properties in London still command the highest rent prices – but properties in the capital are expensive (London property auctions can help to get the costs down).
If you’re unsure what the rental potential of your property is, ask a professional property investment agent in London (or of course, in the location you’re buying in) for advice.
Once you’ve worked out the average rent you can expect to make, you can estimate your net rental yield. To do this, take your net rental income, and divide by the cost of the property. So, if your net income is £7,500 and the property cost £150,000 – simply divide £7,500 by £150,000. This gives you 0.05 – 5% returns over the year.
Other Earning Potential?
Of course, your property may also generate additional income for you – in the form of capital gains. If your property increases in value over time, this is also considered profit; so it makes sense to seek out bargain houses at property auctions (UK), or to identify suitable properties not available on the general market.
The Buy2Let Shop Limited
If you want to find out how much you can potentially earn as a landlord, get in touch with The Buy2Let Shop today. Our team of professional property investment agents in London will talk you through your options, plus show you a wide range of investment properties for sale – which are not available to the general public. Additionally, we offer advice on property auctions (UK) and regularly hold helpful property seminars to help investors to understand the market.
To find out more, simply visit our website today.