May, 2021
Thinking of investing in a Buy-to-Let……….
A two-minute read to help you quickly determine the return on a buy-to-let property in and around The New Forest.
If you’re looking for a property to rent out, it’s important to understand the numbers involved. You may have inherited a property and are thinking of letting it. Use the information here to identify if that is a prudent thing to do or if the capital from selling the property could be better invested.
Find the numbers
The simplest way to work out your gross return on a rental is to estimate some numbers. You can have a browse on the property portals to get a vague sense of what properties in your budget sell for and let for. These figures change across the country so it’s important to start with your own research.
Return on your investment.
Here’s a simple calculation to get you the basic overview. Let’s use an example of a £100,000 property that rents out for £5000 per annum with a £25,000 deposit.
Purchase Price: £100,000
Mortgage used: £75,000
Cash invested: £25,000
Annual Rent: £5,000
Annual Costs: £2,000
Annual profit: £3,000
Return on Investment: 12%
Example Calculation: Annual profit (£3,000) / Cash Invested (£25,000) X 100 = RIO (12%)
For some investors this is sufficient. Others look for higher but it’s all rather area dependent. In some areas the yield will be higher but the capital appreciation will be lower, in The New Forest you may have a lower yield but the capital appreciation will be far higher.
Deduct your deductions
Remember to work out your figures, a leasehold property may have ground rent and maintenance charges whereas a freehold wont. 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 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:
These can be off-set against your income for tax purposes.
Taxes, taxes, taxes
It’s reasonably straightforward to submit your tax returns yourself. They need to be done annually and submitted by the following January. It’s recommended though to use an accountant. They will be up to date with all the latest options open to you. Not only that, they can often help in other areas, like looking at your pension or investment options.
For rental opportunities in The New Forest, get in touch with us at BrightWater. Our lettings specialists can help you consider the market and the best options out there for you.
COPYRIGHT BrightWater 2021
