Landlords have seen average rental yields of 6% in Q3 – a fall from 6.7% in the same period last year, according to a survey from market research firm BDRC Continental.
Part of the reason for the drop is that the average cost of renting a property in the UK has fallen; it’s down by 4.6% in October 2013. However, that is still 2.7% more than tenants were paying a year ago.
With falling yields, monthly profit margins are increasingly being squeezed and landlords and investors are being urged to ensure they have a business plan which can cope with the risks that came with falling property yields.
Tips for landlords to increase yield
Peter Armistead, of Armistead Property, said that while property price rises are seen as being a good thing for homeowners, they can be a double-edged sword for property investors.
He explained: “Investors need to assess carefully any potential purchases and ensure that the properties they own already are operating efficiently; underperforming properties need to be reviewed.”
He said that it would be worthwhile for the landlord to manage an underperforming property personally rather than using an agent and ensuring that any maintenance or renovations are carried out immediately to help improve the property’s yield.
Mr Armistead is also giving potential landlords, and landlords with small portfolios, tips on how to increase yields and run a thriving business.
He says the most important issue for potential investors is to purchase buy-to-let properties below their market value and they must be in the right area for rentals. This will inevitably mean buying a property that needs some refurbishment.
The cost of the refurbishment needs to be factored into the property’s cash flow projection so that the investor will enjoy a higher yield which comes with properties that are ‘nearly new’.
Landlords can work to avoid drop in yields
Once an investor decides to move into the buy-to-let sector, it is crucial that they treat the investment as a business and use professionals who are experts in their field, says Mr Armistead.
He also points out that the real profit made from property investment comes when the property is bought and not when it is sold, which is why Mr Armistead urges potential investors to buy at below market rates and invest for the long-term.
Another major point for potential buy-to-let investors is to view their property as an asset rather than a liability: the difference is to have a property that generates an income rather than speculating on house price rises to make money.
