Those who invest in real estate will likely be looking for a mixture of income split between capital gain and rental income. These are the two main elements you should take into account when looking at an investment property and with capital gains being more of a long-term strategy you should perhaps focus on the rental income in the short to medium term. So, what yield should you expect for a buy to let property?
The simple fact is, you will find this when you research your real estate market, the rental yield on property varies from place to place, property to property and deal to deal. Some property investments may offer more in terms of possible capital gains while others may offer a long-term rental income with limited capital gains. If you put aside the cost of finance, which is for many the major factor when looking at a buy to let investment, there are many other factors to take into consideration.
Working out your cost
In theory it is very simple to work out what you would need to cover the cost of maintaining a buy to let property which you can then be converted into rental income. Well, in theory it is very simple but in practice it is not quite that straightforward.
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While some of the more speculative property investors may well take out the minimum insurance required or in some cases none at all, it does not make sense to spend significant funds on a property and not take out insurance. The cost of insurance will depend on a number of factors including location and the value of the property.
Upkeep and maintenance of the property
Whether we like it or not, there will be times when various fixtures and fittings will need to be replaced and very often this liability falls upon the landlord. You may consider adding various clauses to rental agreements which could give you some income towards the upkeep of the property but in the majority of cases it does fall to the owner to ensure good quality upkeep.
If you acquire leasehold property there is every chance that you will need to pay a ground rent and possible service charges. These are costs which should be incorporated into your rental income calculation as they will be constant and they are likely to increase over time. If you miss out some of the more simple costs associated with a buy to let property you may end up hundreds of dollars short to pay for upkeep and maintenance.
Your property will not always be occupied
Some investors new to the buy to let industry automatically assume that their property will be let out 52 weeks of the year, every year. There may be some investors lucky enough to come across these particular situations but the likelihood is that your property will be empty at some point, often between tenants, and in some cases this period could be relatively long. The longer your property remains unoccupied the more rental income you lose and the greater the cost to you out of your own pocket.
These are just some of the factors you need to take into consideration when looking at the buy to let property market. In a perfect world your rental income should cover all of your property based costs, with perhaps a little extra over and above, but in reality this depends upon the property, the area and the level of occupation. If you work out the cost of maintaining your property then it is relatively easy to work out the required rental income not forgetting to take into account the cost of your finance.