Why property investors shouldn’t simply focus on rental yields
It’s been a difficult few years for the Buy-to-Let sector, following several tax and regulatory changes from the Government. This has caused many property investors to re-think their portfolios, but Landlord Insurance provider Just Landlords warns against focusing solely on rental yields.
When looking at the profitability of your property portfolio, it’s easy to look simply at the rental yields that you’re achieving on an annual basis. This may be particularly the case following the reduction in tax relief on finance costs for Buy-to-Let landlords.
However, Just Landlords has highlighted the other factors that property investors should take into account when assessing the profitability of their portfolios, and why they may be more important than rental yields.
Ahead of the New Year, take some time to evaluate how lucrative your portfolio is, by looking at the following areas, alongside your rental yields:
Property is often considered a long-term investment, particularly if you’re looking to let yours to tenants. As such, you should look at the profitability of your investments on a long-term basis.
For property, particularly in today’s market, this focus should be on the capital gains that you can achieve on a purchase over time. Over the past few years, house prices have soared – and continue to – in parts of the country. Even the slowdown seen in London is beginning to reverse again.
Annual rental yields aren’t the only ways that you can make money from your properties; if house price growth in the area that your property is located in stays strong, then you could see substantial gains on its value when you come to sell.
Low house prices
If you’re planning a future buy-to-let purchase, it can be easy to focus on the potential monthly rental income that your property could achieve on the lettings market. However, you must be aware of how misleading this can be, as some of the most expensive homes to rent are also the most expensive to buy for you as the investor.
Instead, it is wise to look at areas that still boast relatively low house prices, but can command above average rents on the market. This way, your expenditure at the initial outset won’t be so high, but you can still receive a substantial monthly income in rent.
Often, investors will look at the highest monthly rent price on the market that they can achieve, but ignore the fact that these properties come with a huge price tag. Seeking locations where house prices are still quite low may actually be more lucrative.
Low mortgages rates
At the same time as seeking areas with low house prices to make investing easier in the short-term, shopping around for low mortgage rates can also go a great way to reducing your costs.
Although interest rates have been rising over the past few months, they are still exceptionally low by historical standards, so don’t be put off by investing with a mortgage. If you already have a mortgage, you may want to consider remortgaging to a fixed term deal when your current rate comes to an end, to give you a degree of stability for the future.
What you should remember, however, is to look at the complete cost of a mortgage, including fees, to assess how expensive it will be in the long-term. Ensuring that you are on the correct deal can make your monthly and annual returns much greater.
High tenant demand
Unless you’re planning to flip or renovate properties, rather than letting them, high tenant demand is essential in guaranteeing a successful investment. In today’s market, strong levels of demand from tenants aren’t hard to come by, as increasing numbers of households are living in homes let by private landlords.
Nevertheless, there are still certain locations that attract higher levels of private renters than others, so you must make sure that any areas you look at are hotspots for rental properties.
Depending on the type of property that you want to let to which type of tenant, these locations will differ. For instance, families with children will be attracted to suburban areas, while young professionals will focus on city centers. Investing in the right type of home in the right place should ensure that your property is occupied on a consistent basis, which gives you the best chance possible of receiving regular income on your investment.