As a young professional, you’re always looking for new opportunities to invest your money. And what better way to invest than in property? Real estate is a solid, long-term investment that can provide you with a healthy stream of passive income.
But not all property investments are created equal. If you’re looking to maximize your returns, you’ll need to focus on properties that produce high rental yields. This article will give you some tips on how to find and invest in these types of properties.
What is a Rental Yield?
Before we get into how to produce higher rental yields, let’s first take a step back and define what we mean by “rental yield.” Rental yield is the annual return on investment (ROI) that you can earn from renting out your property. It’s calculated by dividing the yearly rent by the purchase price of the property.
For example, let’s say you purchase a property for £200,000 and you’re able to rent it out for £1,500 per month (£18,000 per year). This would give you a rental yield of 9%. Not too shabby! But obviously, we’re aiming for higher than that. So how do we do it?
Tips for Finding High-Yielding Properties
There are a few things you’ll want to keep in mind when searching for high-yielding properties. Here are some tips:
Look for the right properties
First, look for areas with high demand for rental units. This could be cities with strong job growth or areas near major universities. You’ll also want to look for properties that are undervalued relative to similar properties in the area. These could be fixer-uppers needing a little TLC or properties being sold at below-market value due to recent foreclosures or other economic factors.
Another thing to remember is that not all property types will produce equally high yields. For example, single-family homes will typically have lower yields than multifamily homes or commercial properties. This is because there are higher costs associated with owning and maintaining a single-family home (e.g., landscaping, repairs, etc.). So if you’re looking for the highest possible returns, you may consider investing in multifamily homes or commercial properties.
HMOs, or houses in multiple occupations, are a type of multifamily home that can produce especially high rental yields. This is because can rent out individual rooms within the house, rather than the entire unit. So if you have a five-bedroom HMO, you could potentially rent out all five bedrooms and earn five times the rent of a single-family home.
Of course, there are also some additional costs and considerations that come with owning an HMO. For one, you’ll need to get a license from your local council to operate one. You’ll also need to ensure that the property meets all necessary safety and fire regulations. But if you’re up for the challenge, an HMO can be a great way to earn high rental yields.
If you’re considering investing in an HMO, it’s a good idea to seek out some mentorship first. This will help you learn the ropes and avoid any common mistakes. There are a few different ways to find HMO mentorship:
- Look for local groups or forums where experienced HMO landlords are active. This can be a great way to get advice and tips from those who have been in the business for a while.
- Attend local property events or trade shows. Many of these events will have sessions or workshops on how to succeed with HMOs.
- Seek professional property mentors. Several online courses and programs can teach you everything you need to know about owning and managing an HMO.
Focus on cash flow
Once you’ve found a few potential properties, it’s time to start crunching the numbers. The key metric you’ll want to focus on is cash flow. This is the difference between the income you bring from renting out your property and the amount you spend on mortgage payments, repairs, maintenance, and other costs.
Ideally, you want to find a property that has positive cash flow. This means the rental income overpowers the costs of owning and operating the property. But even if the property doesn’t have positive cash flow at first, it could still be a good investment if the rent is high enough to cover the mortgage payments and you’re expecting the property value to increase over time.
It’s also worth noting that properties with higher yields tend to have higher risks. So if you’re looking for the highest possible returns, you’ll need to be willing to accept a higher level of risk. Before investing in any property, do your homework and carefully consider all the potential risks and rewards.
There are a few key things to keep in mind when looking for properties to invest in. First, you’ll want to focus on areas experiencing population growth and having a high demand for housing. Additionally, you’ll want to focus on properties that have the potential to produce high rental yields. Of course, there are always risks involved in any investment. So before you commit to anything, ensure that you’ve done your research and are comfortable with the risks.