A two-minute read to help you quickly determine the return on a buy-to-let property in the Exeter and East Devon area.
If you’re looking for a property to rent-out, inherited a property and considering letting it, or thinking of keeping your current home and moving away, or moving-in with your partner, it’s important to understand the numbers involved. Use the information here to help decide if that is a prudent thing to do. Or, if the capital from selling the property could be better invested.
Find the numbers
It is first useful to estimate the rent likely to be achieved and the value of the property if sold. A browse through Rightmove will help you get a sense of what properties are in your budget, in the local area and what they sell for and let for. These figures change across the country so it’s important to start with your own local research.
Quick and easy comparison
A simple comparable of let properties is to know the gross return. This is the revenue from the rent without taking into account any bills you may pay.
Here’s a simple calculation to help you get the basic overview. Let’s use an example of a £300,000 property that rents out for £1200 a month.
£1,200 x 12 (months) = £14,400 p.a.
Divide £14,400 by the purchase price of £300,000 = 4.8%.
For many investors, a gross yield of 4.8% would be sufficient. Other investors might look for higher but it’s all rather location dependent. Here in the Exeter and East Devon area, yields can vary, between 4% and as much as 6% or more – but generally the better the location and the better the quality the property, the lower yield one might accept.
If you are able to turn the property into a House of Multiple Occupancy (HMO) you would expect a higher gross yield – usually between 7% – 11% but are also likely to have higher monthly costs, as many landlords pay the utility bills. Therefore, the net rent is likely to be 6% in the prime student locations and as much as 9% in the secondary locations. Other considerations would be HMO planning and licencing regulations as well as any mortgage lender’s terms and conditions. We have a specialist HMO department who would be only too pleased to help if you have any questions.
Deduct your deductions
We’ve worked out your gross figures. But it’s the net figures that are the ‘money in your pocket’ numbers. To work these out, you’ll need to employ a little more guesswork. Better still, ask a reputable local property expert, like us, who deals with these things, day-in, day-out. Then you’ll be closer to an accurate estimate. The figures you need are:
- Solicitors’ costs (if you’re purchasing a property)
- Landlord’ insurance
- Landlord’s utility bills (if any)
- General property maintenance
- Agency fees
- End of tenancy cleaning costs
These can be off-set against your income for tax purposes.
Taxes, taxes, taxes
It’s reasonably straightforward to submit your tax returns yourself. Returns need to be done annually and submitted by the following January. It’s recommended though to use an accountant, who will be up-to-date with all the latest options open to you and who can often help in other areas, like looking at your pension or investment options.
For rental opportunities in the Exeter and East Devon area, get in touch with us on 01392 455920 or email email@example.com Our lettings team and buy-to-let specialists can help you consider the market and the best options out there for you.
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