170 171
How it works
Buying property to rent has become a popular choice
for investment in many parts of the world thanks to
low interest rates on mortgages and comparatively
high rents. However, landlords will need to spend
money on a regular basis on mortgage interest,
insurance, agency fees, maintenance, and repairs,and may also need to spend time managing the
property. There is also the risk that the landlord can
lose out financially if their property remains empty,
or if tenants default on their rental payments or cause
damage the property. Landlords base the success
of their investment on the value of the regular
rental yield it produces.After deducting expenses, the rental income
as a percentage of the property cost—the yield—
is high compared with the national average.After deducting expenses, the rental income
as a percentage of the property cost—the yield—is
relatively low compared with the national average.Low rental yields
can indicate:
❯❯Rents are steady and property
prices have risen—for example,
when low interest rates fuel a
property bubble, driving up the
cost of houses relative to rent
and income.
❯❯Rental demand has fallen, so
that rents have risen more
slowly than property prices—for
example, in a city with low
unemployment when interest
rates are low, encouraging
renters to buy.$1,200 expenses
High rental yields
can indicate:
❯❯The presence of large
immigrant or transient
populations, who seek short-
term housing while they take
advantage of local opportunities,
and are unwilling or unable to
purchase property.
❯❯Rents are steady and property
prices have fallen—for example,
in a booming town offering
high wages, which attracts
new residents who fuel local
rental demand.RENTAL
YIELDRENTAL
YIELDProperty cost 100 Rental yield
6.6%
$2,000 expenses
3%
$14,400 − $1, 20 0
$200,000
x 100$17,000 − $2,000
$500,000
x 100PERSONAL FINANCE
Investments for incomeUS_170-171_Rental_income_from_property.indd 171 13/10/2016 16:20