Are you a commercial property landlord? Regardless of whether you are a first-time landlord or have been doing it for years, the main motivation around renting out your commercial property is almost certainly to earn as much money as possible from it through your rental yield.
Here at Boxpod, we are interested in helping landlords earn as much as possible from their commercial properties, whilst ensuring that tenants get the best deal for them. We aim to help to create the perfect partnership, matching businesses and landlords.
In this article, we are going to discuss the ways that a commercial property landlord can increase the yield on their property.
What is Rental Yield?
Rental yield is, essentially a measure of how much money you are making on your rental property. It can apply to both rented commercial property as well as residential. It is calculated by dividing the annual rental income of the property by the total amount that has been invested by the landlord, with the answer then given as a percentage.
For example, monthly rental income – £2,000 x 12 (Annual rental income) = £24,000
£24,000 ÷ Amount invested (e.g., cost of property) £350,000 = 0.069
0.069 x 100 = 6.9%
It is generally considered that between 5% and 8% is a good rental yield.
Improving your Rental Yield
The factor that you have control over to improve your commercial property’s rental yield is the amount of money that you are charging your tenants. It is not as easy as just upping the rent however, you need to consider it a bit more carefully. The three criteria that you need to think about are:
- How the market is behaving – demand and supply. The more in-demand your property is, the more that you can charge.
- How much you paid for the property and how much you have invested overall.
- The value that you are giving your potential tenants – how much they want the property. This is the one that you can have more control over.
With this in mind, we’ll take a look at what you can do as a commercial property landlord to give you the maximum rental yield possible.
1. Ensure that you buy the right property
The first step is to ensure that you spend the right money on the right property. Make sure that you do your research into the property type, its location, and its potential for rental. It might not be easy to rent out a warehouse space that is close to a road that is notorious for traffic bottlenecks, or a retail unit in a rural area with no footfall, for example. Consider who you are looking to lease your commercial property to.
It is vital that you do your research into the wider geographical area of the property. Is there somewhere close by that is being developed into a new housing estate, or is it close to stronger rail links, for example? Is it in a university town where your tenants can take advantage of the extra commerce that comes with it?
When you have chosen a property, you should then think about how much money you would be willing to pay for it – and spend on it – to bring it up to spec in order for you to make the rental yield that you require.
With commercial property especially, this should be a commercial decision and not an emotional one.
2. Calculate your outgoings
Even if you are leasing your commercial property, you will still have outgoings. Perhaps some sort of ground rent, mortgage, or insurance, for example. Make sure that you include these in your calculations and cover them in your rental fee.
You should also look to shop around. Get in touch with numerous insurance or mortgage companies, for example, to ensure that you are getting the best deal for you, enabling you to keep your outgoings to a minimum.
3. Make sure that you are charging the right rent
This seems like a given, but you should seek advice and look around to check that you are charging the going rate for a similar property (in a similar location). Remember that as well as earning what is right for you, it is also important to charge your tenants what is fair and reasonable. By carrying out your research in the area, you can ensure that you are doing this.
You could also consider putting a rent review into your contract if you feel that the value of the rent of your commercial property could drastically change.
4. Make your property more attractive
The best way to ensure that you are earning well on your rented commercial property is to make it as attractive to prospective tenants as possible. This could be as simple as giving the commercial space a lick of paint or a new carpet. It could also mean larger projects such as re-fitting toilets, changing the layout – adding in or removing small offices, or ensuring that the space is wheelchair accessible. It could also include making sure that there is ample parking, and that the exterior of the building looks smart and professional. You should also ensure that the property is as energy-efficient as possible – update heating systems and make sure that it is well-insulated.
The more attractive that you make your commercial property, the more likely you are to create high demand, and the more you can charge in rent. It will also encourage your tenants to look after it better.
It also improves your chances of getting (and keeping) long-term tenants. Long-term tenants are generally preferable as it can cost time and money to find new tenants, not to mention the time that the property would stand empty.
If you have a commercial property that you are looking to lease to tenants, you’ve come to the right place! Get in touch with us today and let us help you to find the perfect commercial tenants for you.