What type of buy-to-let property achieves the highest rental yield?

Landlords are always seeking the best returns from their property investments, but it can be confusing (and time-consuming) to figure out which of the options available will provide the best results.

Even when you just focus on rental yield, it can be hard to know which properties are going to earn you the most. There are a number of variables that dictate how much you spend on an investment, including money spent on repairs and maintenance, both before and during letting the property.

These all need to be taken into account when calculating a rental yield - which is the total amount of rent minus the running costs (including mortgage payments, insurance, repairs and maintenance etc) divided by the total amount invested to buy the property (including tax and legal fees).

Fortunately for buy-to-let landlords, mortgage broker Mortgages for Business has taken some of the hard work out of working out the highest yields by calculating the figures on different types of property.

HMOs and multi-units bring in the high rental yields

The research found that Houses of Multiple Occupation - which is defined as any rental property shared by three or more tenants who are not members of the same family - produced the highest types of yield last year at 8.9 per cent.

However, this is the first time that yields for this type of property have dipped below the nine per cent threshold since 2011.

Multi-units - such as blocks of flats - were ranked second highest, generating yields of 8.1 per cent, with standard buy-to-let properties significantly lower at 5.5 per cent. The research defined standard buy-to-let properties as two to three-bedroom flats and houses, bought using off-the-shelf mortgage products offered by mainstream lenders.

Lower value properties may make better investments as landlords look to the North

The research also revealed that the average value of a vanilla buy-to-let property last year was £305,283, a 19 per cent decrease on the £375,409 average recorded for the previous year.

The results suggest landlords are looking for lower value properties, according to Jeni Browne, sales director of Mortgages for Business.

She said: “Anecdotally, they have been looking further north for their acquisitions where prices are cheaper. The benefits of this strategy includes less stamp duty, future capital growth, and scope for rental increases which thus allow for slightly higher yields.”

She added: “Savvy landlords like to have a good mix of properties. They like the consistency of vanilla buy-to-lets and the higher returns of more complex property types.

“Although lower than previously, 8.9 per cent is still an excellent return for HMOs, not only when compared to vanilla buy-to-lets but also other, non-property assets.”

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