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A guide to landlord yield calculators

  • 12, Oct 2020
  • Read time: 5 mins

Renting out a property is rarely done for charity – people do it to make a profit on their investment. The trouble is, with so many rules and regulations to follow as a landlord, it can be really easy to lose track of your finances.

A person using their mobile calculator.

One of the best ways to be sure you’re staying on track and making money is to use a yield calculator. Yield is quite simply how much you can make once all your costs have been accounted for, and is usually shown as a percentage of the property purchase price.

In 2015, the average rental yield in the UK was 5%. You can check websites such as Lendinvest to see what the average yields are in your area.

Using a buy-to-let yield calculator

Unfortunately, just looking at a table isn’t going to be accurate enough to tell you what your own rental yield is going to be. There are a lot of factors you need to take into account.

But making a basic buy-to-let yield calculation is helpful in deciding whether or not it’s worthwhile buying a property in the first place. You can find an online yield calculator here.

The average values from the likes of Lendinvest can help you decide roughly whereabouts you want to buy.

The next thing is to look at the price of the property, average monthly rental for similar properties in the area – so you know what you will be charging tenants, how much deposit you can afford to pay and how much interest you will have to pay on your mortgage.

To calculate the basic or ‘gross’ yield, you need to take the mortgage costs away from the monthly rent you expect to get and then divide it by the money you invested in the first place (your deposit). That will give you the gross yield percentage.

However, once you get into the buying process, you will also discover that you need to account for costs such as stamp duty, mortgage arrangements and lawyers’ fees. Adding all of this together will give you a more realistic idea of your yield.

Add in the running costs

Unfortunately, you’re not finished adding up the costs yet! There’s also a number of costs involved in renting out a property that go beyond just the purchase price.

Once you bunch all of these together, along with the original buying costs, and then divide by your deposit, finally you’ll get the net yield figure – this is the percentage your investment is really going to bring in.

As a landlord, there’s a huge range of costs that you may have to consider. For example, you may have bought a flat or house in a complex, which means there could be monthly or annual service charges.

If you decide to use a letting agent, their fees will also increase your total costs. Remember to budget for all of their fees – which could include marketing costs for advertising your property, or even producing a brochure.

When you first bought the property, if you had to renovate, decorate or deep-clean it, furnish it or invest money in bringing all the appliances and equipment up to standard, you will need to add all such expenditure to your costs total.

Any money you’re likely to have to spend during the length of the rental should also be accounted for. This includes spending money on getting hold of gas safety certificates, any memberships of schemes, such as the tenancy deposit scheme, landlord registration, a rent guarantee scheme and all your insurance policies, including buildings, contents and rent protection cover.

When you bring all the fees and costs together, running costs, tax paid on rental income and mortgage repaid to date, finally you will end up with the most accurate and up-to-date figure. This is called the Yield on Actual Investment to Date.

Landlord tax calculator

One of the big things landlords can forget to account for is tax – even more so since the rules changed in the 2015 budget. Income from rent is liable for tax just like any other income, and it is due as soon as your overall income goes above the personal allowance. Not declaring it is tax evasion and can land you with a fine, or even a prison sentence.

Landlords used to be able to gain tax relief on their mortgage interest payments (which, as mortgage interest can be quite a large sum, was quite a big rebate). From April 2017, landlords can get a tax rebate. There are some online landlord tax calculators you can use to work this out, but it’s a good idea to check with your accountant how much you should be paying and when.

It also used to be possible to claim up to 10% tax back against anticipated maintenance costs as well as actual ones, meaning landlords benefited whether they happened or not.

You can still claim such tax relief, but only for maintenance jobs that you can prove happened. So, keeping all those invoices is another essential part of your admin.

Staying on top of the hundreds of different little costs might seem like a pain in the neck from an admin point of view, but it can be really useful.

By making sure you know exactly where all your money is going and when, you can take steps to make sure you’re charging the right amount of rent, not overpaying on maintenance or fees, and generally staying one step ahead of the game.

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