How buy-to-let can still yield 8.9%

New data suggests changing your buy-to-let strategy could help you bank yields of up to 8.9%.

The average yield for a home rented out as a house of multiple occupancy (HMO) – where each room is let individually – is 8.9%, according to the research.

In contrast, Mortgages for Business found that the average yield for a ‘vanilla’ buy-to-let where the whole property is let on one tenancy agreement was far lower at 5.6%.

The research also found that multi-unit rentals, such as a block of flats, offer an average annual yield of 8.1%.

However, the yield for HMO has dropped from 9% the previous year, something that shows its growing popularity, according to Jeni Browns, sales director at Mortgages for Business:

“The attractiveness of HMOs as a buy-to-let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios.

“With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop, although, I suspect that the granting of fewer new HMO licences is also having an impact.”

Landlords buying cheaper properties

The average value of a standard buy-to-let property – one where all the rooms are let under one tenancy agreement – has fallen almost 20% over the past 12 months from £375,409 to £305,283.

One reason for this could be that the additional stamp duty rules mean landlords are looking for cheaper properties to invest in so that they pay less initial tax and potentially higher yields.

Surging popularity of tax-efficient companies

The research also found that more and more landlords are buying properties through a limited company.

Investing via a company lets you benefit from significant tax breaks, including paying corporation tax rather than income tax, and still being able to deduct mortgage interest as an expense.

In the final quarter of 2016, only 31% of buy-to-let properties were bought through a company, but that had risen to 49% by the end of last year.

Source: BT.com