Working out Rental Values for Property to Let

Work Out Rental Values Before Buying Property to Rent out

Work Out Rental Values Before Buying Property to Rent out

Setting a Rent Figure for a Profitable Let

Buying a home as an investment for the future is usually a wise move – but only if you buy wisely. The general trend of house prices is usually upwards, so if you are buying with the long term in mind, you should be able to achieve significant capital growth. However, unless you are living in the house, you will need to ascertain what the optimum level of rent (rental value) is for your property before letting it.

Of course, the bare minimum you would expect would be to cover your expenses. However, with the right purchasing decision, some research into the local area and some careful financial planning with the help of a letting agency, you could actually turn a decent profit.

Assessing Your Costs

Before you can even think about setting a rental rate for your property, you will need to fully assess the cost of owning and letting it. Unfortunately, this is far more complicated than adding up the costs of purchasing your property. While a professional letting agent will work with you to set an appropriate rental rate, you will need to have a thorough understanding of the costs involved.

  • Buildings insurance costs will vary between areas and properties, so a little research is essential. And if you are furnishing your property, you will need contents insurance as well.
  • Replacement fixtures and fittings will be required periodically throughout the period of your ownership, so Rightmove.co.uk recommends that 10 percent of rental income is put aside for replacement items and decoration.
  • Maintenance is an inevitable part of being a landlord, so you should also put aside a percentage of your income every month to cover the costs of maintenance as they arise.
  • If your property is a leasehold, you will probably have to pay service charges and ground rent.
  • Vacant properties mean you won’t be receiving an income, so it’s always a good idea to set aside a little cash every month for such an eventuality. However, Barnsley letting agents with experience in your local area should be able to minimise the time your property stands empty.
  • Fees from rental agents must also be factored into the total cost of letting a property. However, choosing a skilled and knowledgeable agent will give your property an advantage over other houses to let in Barnsley.
  • The deposit you paid on purchasing your property

Doing the Maths

The basic principle of property letting involves charging more in rent than your property costs. Once you are sure that all the costs of owning and letting your property have been identified, it’s just a simple matter of adding them all up and deducting the total from the average rent for similar properties in your area – the difference is called your ‘net rental income’. This will give you an idea

whether letting is feasible.

However, you may find that the costs are greater than the rent you’re likely to achieve. In this situation, you will need to either cut costs wherever possible, raise your rent above the average for houses to let in Barnsley, or accept the fact that you might have to absorb a loss on your property. Of course, there is always the option to sell your house and search for a more appropriate letting opportunity.

A lettings agent will be concerned with achieving the maximum net rental yield, which is best explained with an example.

You charge £500 per calendar month for your property, which gives you £6,000 of rental income. However, after adding all your costs – calculated at £5,000 – and subtracting them from your rental income, you are left with a net rental income of just £1,000 per year.

Now, imagine you paid £100,000 for your property; this would give you a ‘net rental yield’ of 1 percent. If you’re paying more than £1,000 per year on finance for the property, you are losing money. Only by consulting with expert letting agents in Barnsley will you be able to set the rent that will maximise your ‘net rental yield’. There is a great guide and rental yield calculator available at YourWealth.co.uk that will simplify the process greatly.

The level of rent you charge is complicated by local demand and average rental rates in your area. However, if you have bought well and researched the area thoroughly, there is no reason why the value of your home and the rent achievable won’t rise steadily over the years.