What is a Good Rental Yield?
Understanding rental yield becomes even more important when you consider different real estate strategies.
There are many investors that focus on capital growth properties and will accept a lower than average rental yield.
But that is only possible if you have the cashflow to cover costs, or if you are buying cash and do not have to worry about mortgage finance.
For many buy-to-let property investors the criteria is achieving the highest rental yield.
So what does ‘good’ look like and how do you beat ‘average’?
Buy-to-Let
A standard buy-to-let property might earn a gross rental yield of 6% or higher depending on the location (central London buy-to-let properties cost a lot more and would have a lower rental yield than other Cities). Yet there are many towns and cities currently providing much higher yields as rental demand is so high that rental prices per month have been pushed up, improving yields.
For example, cities like Oldham and Nottingham have properties with gross yields at 7% and 8%+ if you know where to look and how to find the best off-market property opportunities.
Purpose Built Student Accommodation (PBSA)
PBSA provide great rental yields as the asset cost is typically lower as they are smaller units. With high student demand if the property is in a major city like Liverpool, Leeds or even Durham where rental demand is high, then these gross yields can be 8%+.
Student HMOs
Meanwhile, Student HMO investments (Houses in Multiple Occupation) can deliver more substantial gross yields of 12% or above. These properties do require more extensive management and are often higher value assets and may require specialist financing (which come with increased interest rates), so they are typically for the more experienced landlord.
Professional HMOs
Similar to students, professional HMOs (working tenants) are typically around the 12%+ gross rental yield mark. Remember though the price of the asset really matters here. A 7 bedroom house of multiple occupation is much more expensive to buy in London than it is in Lytham St Annes.
Holiday Lets
When buying a holiday let, you may see gross rental yields as high as 20%+. Which sounds really impressive. Yet please remember they do have higher running costs, so more typical maybe around the 10% net rental yield level, which is very high compared to other rental strategies. These are more specialist and only work in some major city, seaside and rural locations.