What type of rental properties offer the best yield?
If you’re thinking of buying a property for yield, in other words the return on your investment, how much rent you’re getting in as opposed to how much the property cost.
Probably, the very best kind of property that you could get is a house in multiple occupation, HMO, or flat let house as they’re often known. These offer some very good returns but there’s a reason for it. They’re normally very labour intensive to look after, you get a lot of changes of tenants, you end up perhaps getting a lot of cases where you don’t get your rent paid on time or at all, and also you generally have to cover costs of things like council tax, heating and so on.
So, those are pretty good but they’re not for everybody. If you want something that’s very straight forward to look after, but doesn’t offer such a good yield. You could look for commercial property, be it an office or a shop.
Generally, if you have these let, you can just forget about them. The rent comes in every month or quarter and it’s all very straight forward.
The thing to remember with commercial property is that prices don’t tend to fluctuate quite as much, so you won’t find that there’s the capital growth there, generally, in the same way as there is with residential property.
So, if you want a bit of a blend of both of these situations you could go for a standard residential property, house, bungalow, flat and you would find then that you get a yield, on average, somewhere around 7-8% gross which whittles down to about 4% net, normally, and of course you have got the good possibility of capital growth when the market starts to rise.
Do be careful if you’re thinking of buying a flat of course, they can often be lots of hidden expenses such as; management charges, repairs that you might not be thinking of. Particularly as many flats are flat roofed.
So, they can be expensive to repair or lifts can go wrong and be very expensive to fix.
So, just bear that in mind, make sure that you check the managing agents information hopefully there will be a good reserve fund of spare cash waiting for any of those sorts of eventualities if you do think about buying a flat.