How To Get The Best Rental Yield From Your Investment?
Real Estate Investing Association: Several techniques make it possible to increase and optimize the rental yield of an investment. Techniques relating to the financing of the property and the nature of the housing. Not all types of rentals are created equal and student-furnished rentals and roommates remain safe bets to increase your return.
Lower the selling price
A good that has defects is an opportunity to negotiate a sale price lower than what was initially requested. What earns some performance points?
Currently, we at SPV Mortgages advise you to find properties that will soon be banned for rental and that are in dire need of renovation work. On this type of housing, you can expect a 15% drop in price compared to a property. Real Estate Investing Association.
Borrower insurance and interest rates
Interest rates have gone up unthinkable just a few months ago. Consequence: access to mortgages is more difficult and the cost of the loan skyrockets. When you invest in real estate it is for the long term, in a few years the rates will perhaps find a lower level. This will be an opportunity to renegotiate your rate to lower your monthly payments.
The advantages of furnished rentals
Rather than renting your apartment or an empty house, we advise you to furnish them. Furnished properties are in fact highly sought after in the city center and near universities, particularly by students and young workers. Real Estate Investing Association.
In addition to higher demand, you can also charge higher rents (up to 20% more). The furnished rental also applies as much to the studio, and as to the large apartments to make roommates there.
Higher rents are mathematically a rental yield that increases. Not to mention that within the framework of the status of a non-professional furnished rental company coupled with the tax regime of the real regime, you can deduct the charges from your rental income and depreciate the property. This is a great way to optimize the taxation of your real estate project.
Choose the right location
The quality of the location is undoubtedly the most fundamental aspect of your investment strategy. Rental demand must be strong in the sector and in relation to the type of your accommodation. The idea is to rent your accommodation for 12 months out of 12 and to have the shortest possible turnover period.
For this, you can rely on the rental tensiometer and check which cities attract the most. If the metropolises see their prices per square meter drop, demand remains strong for the big cities which combine the advantages: economic dynamism, quality of the transport network, and cultural life.
Medium-sized towns and the coasts of the Atlantic coast are increasingly attractive today and have experienced a real craze since the Covid. In any case, take the time to analyze the real estate market of the city in which you wish to invest to avoid any missteps. Real Estate Investing Association.
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Factors that affect rental yield
The rental vacancy
A rental vacancy, that is to say, the absence of a tenant in your rental is the nightmare of any real estate investor. Without a tenant to pay the rent (and repay the monthly installments of your loan), profitability drops to 0.
This is why before investing you must be certain that rental tension is high in the city and the neighborhood, but also that there is demand for the type of property you offer. Real Estate Investing Association.
For example, renting out a studio in a primarily family-oriented area where large accommodation is sought after is the guarantee of not renting out your property. So be very attentive to the profiles of tenants in the targeted area.
Funding
Rental investment is the only investment vehicle that can be financed via a bank loan, an advantage over life insurance and stock market shares. Especially since thanks to the leverage effect of credit, you can become the owner of a property that you could not otherwise afford.
The financing of your investment has a direct effect on your rental profitability. The longer the credit, the lower the monthly payments to be repaid and the more likely you are to generate a loan.cash flow positive. Real Estate Investing Association.
It is said that the property is self-financing, and you are able to draw income from it immediately. On the other hand, the cost of a loan over 25 years is higher than for a loan of 10 years.
What is cash flow?
This is a complementary concept to the rental yield. Cash flow is the difference between cash outflows and cash inflows. Concretely, it is the result between the income received each month and the expenses (monthly credit payments and others). A positive cash flow means that a property is self-financing, which is what many investors are looking for. This is the case for certain properties with an 8-10% rental yield.
On the other hand, do not have in mind only the positive cash flow and the return. For one simple reason. After several years of owning a property with positive cash flow, but of mediocre quality, you want to resell it and there comes the tragedy, you make a loss. Real Estate Investing Association.
The overall financial performance of your investment is no longer so attractive. It may even turn out to be worse than if you had invested in a property with negative cash flow but of excellent quality.
The idea is rather to build a lasting heritage with a good location, and an increase in value rather than betting everything on performance and making a risky investment. This is what we often recommend to investors who choose to go for their turnkey investment.
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