Want more from your investment? For more details on our exclusive Portfolio8 serviceClick here

How much rent should I charge?

When making an investment into buy-to-let property, there are typically two ways in which an investor can expect to benefit from financially and they are capital growth and rental income.

However, fluctuations in the property market are a common occurrence and cannot be controlled, whereas the rental income that is acquired through an investment can be controlled to a certain degree.

By setting the monthly rental fee at the right price, investors are able to control a constant income from their property. It is, however, very important to charge the right amount. The rental income needs to cover a number of things, including any monthly mortgage repayments, insurance, maintenance, repairs and any other expenses that are linked to the property.

These expenses would not be covered and the investor would be making a loss should the rental income not be high enough, yet if you set the rent too high, it may turn potential tenants away.

The relationship between rental yield and the investment

The rental yield that a property can achieve is an important element that is considered before an investment is made. The rental yield of the property is a percentage that can be expected as rental income, calculated as the cost of the property divided by the annual rent.

By looking at the rental yield of different properties, investors are able to take them into considerations during the process of deciding which investment to proceed with. When comparing properties of the same or similar purchase price, the property with the higher rental yield would be the best option to choose. A combination of a higher rental yield and a lower purchase price would result in a better investment that would see the investor benefit more financially.

Market Research

When looking to make an investment, it is advised that investors conduct thorough market research into their property type and also property types within a specific location. If they are considering a property and expect to get a certain amount through rental income, they will need to conduct market research to back it up.

This is because if an investment is based on achieving £2000 a month through rent, but the same property type within the area is on the market for £1500, it isn’t likely that tenants will opt for the £2000 a month property.

The market research can be used to get an idea on the level of rental income a property can achieve, and also which locations are typically have higher levels of rent. This data could then be used to decide which property to invest in and within which area they would like it to be located, and that is when investors can begin their search for their perfect property.

Taking into account different property types and different locations is important, particularly as rental income can differ massively in various parts of the country. For example, in the north of England there is an average rent of £663 a month, whereas in Central London it can be expected to achieve an average of more than £2500 a month.

How does a mortgage affect rental yield?

Many yields are calculated or displayed based on the yield that would be achieved based on an outright purchase of a property. However, if an investor purchases a property through the use of a mortgage, their rental yield will actually be higher than an investor purchasing the property outright. This is because using a mortgage requires a lower initial outlay of money, based on the fact that the investor is essentially taking a loan for the money needed to buy the property.

To work out the annual yield of the property, you firstly need to take the mortgage repayment fee away from the monthly rental income, covering the mortgage whilst leaving the rest for maintenance, repairs, insurance or profit. With all other property purchasing costs taken into account, an investor purchasing the property through the use of a mortgage would have almost doubled the percentage yield than that of an outright buyer.

Despite such a big difference in percentage yield, it is important to remember that there are other costs associated with the investment such as maintenance and repairs, letting fees, insurance, landlord expenses and of course the possibility of void periods. As well as this, dependant on the terms of your mortgage, you would need to ensure that even if interest payments increased, you would still be making a profit from the property.

What your mortgage lender expects

In order to be sure that you can make the monthly repayments as well as covering other associated landlord fees, mortgage lenders will typically expect you to charge a minimum of 125% of your monthly mortgage repayments.

If the area is competitive and you can charge more than the 125% then you should do this to boost your profits, however you should not go beneath the 125% expectation. This would mean that if your monthly mortgage repayments were £300 a month, the lender would expect you to charge at least £375 rent per month.

Key points to remember

As far as financials and rental income is concerned, there are a number of elements to an investment that need to be considered before any decisions are made:

  • Property type and location of the property have a big affect on how much you can charge for rental income.
  • Researching into different property types and locations can give you an insight into what you can expect from your investment.
  • Potential tenants will search the market for cheaper monthly rental fees, so you need to make sure that you are competitive.
  • Higher percentage yields are achieved through the use of a mortgage.
  • When using a mortgage to purchase the property, you need to ensure that the monthly rental income that you receive is at least 125% of the mortgage repayments.

Contact the Team

Call us on +44 (0) 161 337 3890 or contact us using the form below to arrange your free no obligation property consultation.

  • United States+1
  • United Kingdom+44
  • Afghanistan (‫افغانستان‬‎)+93
  • Albania (Shqipëri)+355
  • Algeria (‫الجزائر‬‎)+213
  • American Samoa+1684
  • Andorra+376
  • Angola+244
  • Anguilla+1264
  • Antigua and Barbuda+1268
  • Argentina+54
  • Armenia (Հայաստան)+374
  • Aruba+297
  • Australia+61
  • Austria (Österreich)+43
  • Azerbaijan (Azərbaycan)+994
  • Bahamas+1242
  • Bahrain (‫البحرين‬‎)+973
  • Bangladesh (বাংলাদেশ)+880
  • Barbados+1246
  • Belarus (Беларусь)+375
  • Belgium (België)+32
  • Belize+501
  • Benin (Bénin)+229
  • Bermuda+1441
  • Bhutan (འབྲུག)+975
  • Bolivia+591
  • Bosnia and Herzegovina+387
  • Botswana+267
  • Brazil (Brasil)+55
  • British Indian Ocean Territory+246
  • British Virgin Islands+1284
  • Brunei+673
  • Bulgaria (България)+359
  • Burkina Faso+226
  • Burundi (Uburundi)+257
  • Cambodia (កម្ពុជា)+855
  • Cameroon (Cameroun)+237
  • Canada+1
  • Cape Verde (Kabu Verdi)+238
  • Caribbean Netherlands+599
  • Cayman Islands+1345
  • Central African Republic+236
  • Chad (Tchad)+235
  • Chile+56
  • China (中国)+86
  • Christmas Island+61
  • Cocos (Keeling) Islands+61
  • Colombia+57
  • Comoros (‫جزر القمر‬‎)+269
  • Congo (DRC)+243
  • Congo (Republic)+242
  • Cook Islands+682
  • Costa Rica+506
  • Côte d’Ivoire+225
  • Croatia (Hrvatska)+385
  • Cuba+53
  • Curaçao+599
  • Cyprus (Κύπρος)+357
  • Czech Republic+420
  • Denmark (Danmark)+45
  • Djibouti+253
  • Dominica+1767
  • Dominican Republic+1
  • Ecuador+593
  • Egypt (‫مصر‬‎)+20
  • El Salvador+503
  • Equatorial Guinea+240
  • Eritrea+291
  • Estonia (Eesti)+372
  • Ethiopia+251
  • Falkland Islands+500
  • Faroe Islands (Føroyar)+298
  • Fiji+679
  • Finland (Suomi)+358
  • France+33
  • French Guiana+594
  • French Polynesia+689
  • Gabon+241
  • Gambia+220
  • Georgia (საქართველო)+995
  • Germany (Deutschland)+49
  • Ghana (Gaana)+233
  • Gibraltar+350
  • Greece (Ελλάδα)+30
  • Greenland (Kalaallit Nunaat)+299
  • Grenada+1473
  • Guadeloupe+590
  • Guam+1671
  • Guatemala+502
  • Guernsey+44
  • Guinea (Guinée)+224
  • Guinea-Bissau (Guiné Bissau)+245
  • Guyana+592
  • Haiti+509
  • Honduras+504
  • Hong Kong (香港)+852
  • Hungary (Magyarország)+36
  • Iceland (Ísland)+354
  • India (भारत)+91
  • Indonesia+62
  • Iran (‫ایران‬‎)+98
  • Iraq (‫العراق‬‎)+964
  • Ireland+353
  • Isle of Man+44
  • Israel (‫ישראל‬‎)+972
  • Italy (Italia)+39
  • Jamaica+1876
  • Japan (日本)+81
  • Jersey+44
  • Jordan (‫الأردن‬‎)+962
  • Kazakhstan (Казахстан)+7
  • Kenya+254
  • Kiribati+686
  • Kosovo+383
  • Kuwait (‫الكويت‬‎)+965
  • Kyrgyzstan (Кыргызстан)+996
  • Laos (ລາວ)+856
  • Latvia (Latvija)+371
  • Lebanon (‫لبنان‬‎)+961
  • Lesotho+266
  • Liberia+231
  • Libya (‫ليبيا‬‎)+218
  • Liechtenstein+423
  • Lithuania (Lietuva)+370
  • Luxembourg+352
  • Macau (澳門)+853
  • Macedonia (FYROM)+389
  • Madagascar (Madagasikara)+261
  • Malawi+265
  • Malaysia+60
  • Maldives+960
  • Mali+223
  • Malta+356
  • Marshall Islands+692
  • Martinique+596
  • Mauritania (‫موريتانيا‬‎)+222
  • Mauritius (Moris)+230
  • Mayotte+262
  • Mexico (México)+52
  • Micronesia+691
  • Moldova (Republica Moldova)+373
  • Monaco+377
  • Mongolia (Монгол)+976
  • Montenegro (Crna Gora)+382
  • Montserrat+1664
  • Morocco (‫المغرب‬‎)+212
  • Mozambique (Moçambique)+258
  • Myanmar (Burma) (မြန်မာ)+95
  • Namibia (Namibië)+264
  • Nauru+674
  • Nepal (नेपाल)+977
  • Netherlands (Nederland)+31
  • New Caledonia+687
  • New Zealand+64
  • Nicaragua+505
  • Niger (Nijar)+227
  • Nigeria+234
  • Niue+683
  • Norfolk Island+672
  • North Korea+850
  • Northern Mariana Islands+1670
  • Norway (Norge)+47
  • Oman (‫عُمان‬‎)+968
  • Pakistan (‫پاکستان‬‎)+92
  • Palau+680
  • Palestine (‫فلسطين‬‎)+970
  • Panama (Panamá)+507
  • Papua New Guinea+675
  • Paraguay+595
  • Peru (Perú)+51
  • Philippines+63
  • Poland (Polska)+48
  • Portugal+351
  • Puerto Rico+1
  • Qatar (‫قطر‬‎)+974
  • Réunion (La Réunion)+262
  • Romania (România)+40
  • Russia (Россия)+7
  • Rwanda+250
  • Saint Barthélemy+590
  • Saint Helena+290
  • Saint Kitts and Nevis+1869
  • Saint Lucia+1758
  • Saint Martin+590
  • Saint Pierre and Miquelon+508
  • Saint Vincent and Grenadines+1784
  • Samoa+685
  • San Marino+378
  • São Tomé and Príncipe+239
  • Saudi Arabia+966
  • Senegal (Sénégal)+221
  • Serbia (Србија)+381
  • Seychelles+248
  • Sierra Leone+232
  • Singapore+65
  • Sint Maarten+1721
  • Slovakia (Slovensko)+421
  • Slovenia (Slovenija)+386
  • Solomon Islands+677
  • Somalia (Soomaaliya)+252
  • South Africa+27
  • South Korea (대한민국)+82
  • South Sudan (‫جنوب السودان‬‎)+211
  • Spain (España)+34
  • Sri Lanka (ශ්රී ලංකාව)+94
  • Sudan (‫السودان‬‎)+249
  • Suriname+597
  • Svalbard and Jan Mayen+47
  • Swaziland+268
  • Sweden (Sverige)+46
  • Switzerland (Schweiz)+41
  • Syria (‫سوريا‬‎)+963
  • Taiwan (台灣)+886
  • Tajikistan+992
  • Tanzania+255
  • Thailand (ไทย)+66
  • Timor-Leste+670
  • Togo+228
  • Tokelau+690
  • Tonga+676
  • Trinidad and Tobago+1868
  • Tunisia (‫تونس‬‎)+216
  • Turkey (Türkiye)+90
  • Turkmenistan+993
  • Turks and Caicos Islands+1649
  • Tuvalu+688
  • U.S. Virgin Islands+1340
  • Uganda+256
  • Ukraine (Україна)+380
  • United Arab Emirates+971
  • United Kingdom+44
  • United States+1
  • Uruguay+598
  • Uzbekistan (Oʻzbekiston)+998
  • Vanuatu+678
  • Vatican City (Città del Vaticano)+39
  • Venezuela+58
  • Vietnam (Việt Nam)+84
  • Wallis and Futuna+681
  • Western Sahara (‫الصحراء الغربية‬‎)+212
  • Yemen (‫اليمن‬‎)+967
  • Zambia+260
  • Zimbabwe+263
  • Aland Islands+358
+44

Glossary of Terms

Our glossary of terms contains a comprehensive guide to various property investment related terms to give you a better understanding of the language and terminology used when talking about investing in property.

Find out More

Looking to sell?

Are you looking to sell your investment property? The team at Pure Investor can help you sell your investment property and can handle the process from start to finish.

Find out More

Need some help? Request a FREE call back today.

Whether you're a seasoned investor or considering your first property investment, our experienced team are here to help. Arrange a FREE call back from one of our team!

Free Call Back

Call our team today on +44 (0) 161 337 3890

Pure Investor - Property Investment