A buy to let mortgage can be a fantastic way to make money and add a property to your portfolio. If you make a good investment in property, your time as a landlord can be largely stress-free, but in order to achieve this, it is vitally important to make sure everything adds up first.

Getting a good deal on your buy to let mortgage is the first and most important step. You can choose between fixed or variable interest rate mortgages, or mixed mortgages, repayment mortgages or interest-only, and once those decision has been made, it is a good idea to shop around to see which buy to let mortgage lenders are offering the best deal. You can use online buy to let mortgage comparison sites or an independent mortgage broker to do the legwork for you, so you can simply look at the options and make your choice.

Part of working out which buy to let mortgage is right for you is figuring out your what rental yield is, so you can see how much profit you are making and thus whether your mortgage payments are eating up your profits in one way or another. Here are a few tips to make working out rental yields simply.

What is the rental yield on your buy to let property?

There are various definitions of rental yield, but essentially, it is as follows. The gross rental yield of your property is normally the annual rent of the property as a percentage of the value or price you paid for your buy to let property. The net rental yield, also expressed as a percentage of the value or cost of your property, is more like a true value of your rental income. This is the gross rental yield after you have deducted the costs of running and maintaining the property.

So, if the rental income from your property before expenses are deducted is £1,000 per month, that makes £12,000 per year. Remembering to take into account that your property may not be occupied constantly, so for the sake of examples, let’s say it is unoccupied for 10% of the year. So, deduct 10% and you have an income of £11,880. If the property cost you £100,000, that gives you a gross rental yield of 11.9%.

Once you have worked out the gross rental yield, you need to look at the expenses you have incurred by keeping your buy to let property safe, clean and attractive for your tenants. These expenses include insurance, repairs and tax. So, if your expenses for the year were £500, you deduct £500 from £11,880, leaving you with £11,380. This gives you a net rental yield of 11.4%.

Once you have your rental yield, you can work out ways in which you can improve it. The most obvious is to charge more rent if you feel you are being short-changed. Otherwise, you could try to cut down your expenses. For example, if you would like to make your buy to let investment more lucrative, you can shop around for better, cheaper insurance, using online comparisons. You may also want to look into your buy to let mortgage to make sure you are getting the best deal in the long term.