HOW TO WORK OUT THE ACTUAL RETURN ON YOUR INVESTMENT
Rental yields express the annual rent a property would get, as a percentage of its purchase price.
So, a £100,000 property that could rent for £5,000 a year would deliver a 5 per cent yield.
Remember though, if you are buying with a mortgage rent-to-property price yield will not be the return you get.
To work out your actual annual return on investment, first subtract your annual mortgage cost from your annual rent and then work this sum out as a percentage of the deposit you put down.
For a £100,000 property that could rent for £500 per month, you would need a £25k deposit and roughly £2,000 in buying costs.
£75k mortgage at 5% interest rate = £312.50 per month or £3,750 per year
£500 rental income x 12 = £6,000 per year
Difference = £2,250 per year
Deposit + buying costs = £27k
Annual return = 8.3%
[£2,250 as a percentage of £27,000]
Don’t forget tax, maintenance costs and other landlord expenses will eat into that return.