Buying with Cash

Purchasing a Buy-to-Let can be an excellent option for investing your money and providing you with an income or retirement fund. However, before you go ahead with offering on a property you may want to consider the yield.

Working out the yield will enable you to properly evaluate the opportunity in terms of the return on the money you are going to invest. You can then compare this to other investment opportunities.

If you are purchasing with cash and not borrowing money from a bank or building society your ratios would work out as follows:

Gross Yield: This is a measure of your return on investment before tax, in the form of rental income compared to the property's price. The higher the yield, the greater the return you are making. Annual Rent ÷ Property Purchase Price x 100.

For example: Annual Rent of £9000 ÷ Purchase Price of £150,000 = 0.06 x 100 = 6% gross yield

Net Yield: To work out your net yield you need to take into account any expenses incurred. Annual Rent – Expenses ÷ Property Purchase Price x 100.

Buying with a Mortgage

If you will be using both cash savings and borrowed funds for your investment then you will want to take into consideration the interest you are paying on the loan, together with your expenses, when working out your return. To work out your net yield remember to take off your Expenses and Loan Interest from the Annual Rent Received ÷ Property Purchase Price x 100