Yield is key to understanding if a property is a good investment.
Net Yield - It is what is left after all expenses. It can be hard to calculate as there are so many variables involved.
Gross yield is everything before expenses.
Most agents do not advertise yield correctly. They will put in potential yield, or will not include costs that incur when buying etc. This is why investors need to do their own due diligence when buying a property. Costs that should be included are buying costs, stamp duty, fees associated with buying, rental fees and maintenance costs during the year (some hard to foresee).
Here are a few other due diligence checks to look into before buying.
Rental Income
Is it bringing in rent and have the tenants been paying on time?
Will there be voids in the property if its empty, if so - how long will you be covering a mortgage for?
Solicitors will always ask the vendors side if the tenants rent has been paid up to date. A better question to find out for yourself is "have they been in arrears during the period of their tenancy at the property and how many times / for how long have they been late. A great way to find out is ask for a rental statement for a certain period.
Area
Research the area you are buying in, this will give you a better idea of what you can expect. Pictures can look great on Rightmove and so can numbers.
Check how long properties are on the market and see how many of them there are to give you an idea of what kind of voids you may expect. Speaking to agents can get very confusing as they can all say something different depending on how their business is experiencing the market.
Lettings Requirements
Have all the legal requirements been done before the tenant moved in, in case you need to serve notices etc. It's best to serve them all again once you have bought the property. This covers you when you need possession of the property and for any errors made by previous landlord/letting agent.
Price
Are you paying the right price? Compare similar properties on the market, sold prices and speak to agents in the area. Some areas can seem like things are moving fast because you will hear how busy agents are on viewings, landlords views etc. Getting things sold and having lots of viewings does not mean they go through to completion.
A staggering 1 in 3 sales fall through in the current market (from a recent survey), meaning vendors are more open to offers.
Maintenance
There will be unexpected maintenance costs during the term. Ensure you get a proper building survey carried out before buying. Things like roof issues, damp, guttering are not obvious on initial viewings. Keep money aside to ensure things will be covered if things arise.
Fees
The fees associated with buying properties and lettings is now increasing.
When buying, remember to include stamp duty and solicitor costs. When renting, there are letting fees, inventory fees, deposit protection fees, management fees, epc fees, gas cert costs and various other costs. Compare solicitors/agents and ensure you speak to a few to get a good understanding on who will be the best for you.
Written by Roksana Akhtar
Roksana Akhtar is an expert in her field and has been in the industry for over 15 years.
With the constant changes in the lettings and property management arena, Roksana specialised into providing her clients and investors with solutions to build their property portfolio with strong government backed leases that allow them to enjoy an income, without getting involved with maintenance, agency and management costs. The focus is to give investors a net yield without the hassle that goes with it.
