Rental Yield Reality Check: New Survey Exposes Rising Costs!

In the rental property market, rental yield stands as one of the most common performance indicators that landlords use to gauge cost-efficiency and profitability. But how does this work exactly? Rental yield looks at rental properties in relation to the cost of running one and how it ties back to its market value. Still sounds a bit confusing? Continue reading to learn more about rental yield, how it works, and what landlords are saying about the impact of operating expenses and vacancies on their yield potential.

What Is Rental Yield and Why Does It Matter?

As a property management company in Atlanta, rental yield is one of the key performance indicators that we watch out for to determine a property’s cost-efficiency and profitability. Why? It’s because rental yield measures your property’s performance relative to its property value and the cost of operating it under the current market conditions.

However, from a landlord’s perspective, one of the biggest advantages of rental yield analysis revolves around identifying operational inefficiencies. How? By looking at the annual operating costs and understanding what your biggest expenses are. From here, you can make smarter decisions about operational adjustments, pricing strategies, and capital improvements to enhance yield potential.

Understanding Operating Costs and Vacancies in Rental Properties

So, what exactly do we mean when we say operating expenses? More so, how do vacancies truly affect your rental yield? Let’s dive in.

First, operating costs refer to the essential and ongoing expenses required to manage your rental property business. For example, as a landlord, you’re responsible for paying property taxes, insurance premiums, and potentially HOA fees (if applicable). These are expenses that typically stay the same or are fixed year after year. However, there are also more variable costs, such as maintenance and repair expenses, utilities, landscaping, pest control services, and marketing and leasing fees.

Then, there are vacancies. By this, we’re not simply referring to the lack of tenants, but more so looking at its implications for your cash flow and expenses. When your property sits vacant, you lose rental income from that unit. But there’s so much more to it.

Even with vacancies, you still need to pay your fixed expenses – mortgage payments, property taxes, and insurance. On top of that, you may also have to continue paying for any utility consumed, spend on marketing and leasing, as well as continuously maintaining the property’s upkeep. These turnover costs, in addition to the lack of rental income, can significantly affect your rental yield potential. What does this mean?

Let’s discuss this using a recent survey conducted by our team at Bay Property Management. Our latest survey, which comprised 5,000 landlords, found that maintenance (46%) and tenant turnover costs (28%) have the most impact on their bottom line. This means that of the many expenses involved in running a rental business property, vacancies and maintenance significantly cut their rental yield.

The same survey also shows that more than half (55%) of landlords spend more than $2,000 for property repairs. On the flip side, only 9% mentioned spending as low as $500 for the most expensive repair they have on their property. This further emphasizes the impact that repair and maintenance, which are necessary to maintain safety and habitability, can have on your income.

In hindsight, some landlords may be taken by surprise by these growing costs. Our survey revealed a near split, with roughly 25% of landlords keeping more than $2,000 as a maintenance reserve fund, and 26% of them not having any reserve at all. However, our survey also shows that most landlords (33%) maintain around $500 to $1,000, and 16% save about $1,000 to $2,000 as repair and maintenance funds.

Now, what about vacancies? Our survey found that 60% of landlords spend more than $2,000 on turnover costs for their rental vacancies. More importantly, the majority of landlords (48%) take a month or so to successfully secure a new tenant. This trend often lines up with a slow or cool market. In such cases, demand may be slow, or supply may be high, making it harder for landlords to find and secure tenancies in a shorter time.

Taking the real cost of repairs and vacancies into consideration, we can see the real numbers that impact landlords and rental property businesses. With thousands of dollars spent just to run a rental property business, landlords across the country are choosing to increase rent prices to keep up with the growing costs and improve rental yield.

Elevate Your Rental Property Business with Bay Property Management

Running a rental property business is neither easy nor cheap. That is why understanding the intricacies of renting properties is essential. By paying close attention to the primary factors that impact your rental yield, such as operating costs and vacancies, you can find more strategic ways to strengthen your investment over time. One way in particular is to leverage property management company services that can help you streamline your operations and cut down on costs. If you’re in need of expert and professional property management, contact us today to learn how we can build a more resilient property business together.