How to work out the return on your Buy-to-Let Investment
The main objective of buy-to-let investing is often generating passive income. This is measured by rental yield, which is rental return as a percentage of the price the property is purchased for.
Rental yield is a key metric for measuring a successful buy-to-let investment and can also be used for calculating the affordability of a buy-to-let mortgage.
However, remember that rental yield may not be the only factor by which you measure an investment, capital appreciation is also an important revenue stream and can be an important measure in a more short-term investment strategy.
Working out the rental yield for your property is fairly easy. Firstly, find your annual rental income for the property and divide that by the property value. Finally, multiply the result by 100 to get the percentage.
As an example equation, consider the following:
Annual rental income = £12,000 \ Property value = £200,000 x 100 = 6%
This gets more complicated when you’re trying to work out the rental yield for a property that isn’t purchased or even built. In this case, you’ll want to consider the past performance of property in a similar area or in the immediate surroundings, taking into account new developments and amenities nearby.
For a quick calculation on the return of your buy-to-let investment, you can use our rental yield calculator which is located below.