Learn to draw a minimum rental income from your property
Richard Donnell, research director at Hometrack property consultancy concedes that in the past one could buy a flat, let it and not worry about rent levels as you would depend on capital appreciation. Unfortunately those days are gone. He states that so-called ‘rational investors’ ought to forget and forgo capital appreciation and should instead look for a minimum rental income for ensuring decent returns. In related research published in The Daily Telegraph it has been assumed that a rational investor would want around 7.5 per cent annual yield, or in other words, he or she will like to recover 7.5% of the purchase price each year in rent (before tax).
With this target or assumption in mind, following aspects have been analysed:
• Local property prices, particularly for two-bedroom flats, the typical rental home
• Demographics, particularly clusters of under-35s – typically, the young, single professionals, student and other would-be first-time buyers who have to rent
• Renters’ Average income and how much they will typically pay in rent.
Using the above data, it has been calculated as how much rational investors should be paying for a two-bedroom flat in any of the top 15 locations across Britain.
The results give some hints to those would-be landlords. In Leeds, for e.g., they should purchase a two-bedroom flat for around £124,800 and give it on rent for £180 per week to reach the target 7.5% annual yield. For the same output in Brighton they should pay just about £149,067 and rent the property for £215, the research paper suggests.