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Landlords seeking high yields need to focus their property businesses on students and young professionals.
Students are clear leaders in the yield table – generating 6.45% a year – with young professionals following close behind at 6.22%, according to Paragon Mortgages research.
The average buy to let yield is 6.2%.
The research also discloses average yields for other tenants –
• Retired people – 6.16%
• Professional workers and executive or company lets – 6.13%
• Young couples and manual workers 5.94%
• Non-housing allowance benefit claimants – 5.78%
Yield is calculated by dividing a letting property’s annual rental income by the value. The calculation is important for landlords because they help with assessing profitability and when comparing two rental opportunities against each other.
“Returns for many landlords will often be higher than stated yields as these are calculated at the current rental income against the property’s value today, not taking into account capital appreciation since the landlord purchased the property or their loan-to-value,” said Nigel Terrington, Paragon’s chief executive.
“Student yields outperform the market because they are let on a per room basis, which can generate higher rental income. On the downside, they tend to require a higher degree of maintenance, so landlords have to factor that cost into their overall business models.”
The results also revealed the number of properties in a portfolio has little bearing on yield.
The figures showed landlords with one property generated the same average yield as those with over 20 properties (6.2%), whilst those with between two and four properties in a portfolio generated a yield of 6.5%.
Location does make a difference. Yields in the West Midlands outstrip the rest at 6.5%, closely followed by Yorkshire & Humber (6.4%) and the North East (6.2%).
Central London returns a lower yield (5.5%) due to the high cost of homes
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