What’s the difference?
Which is more important?
The property market presents several financial concepts to newcoming investors. If you are thinking about investing in rental properties as an investor, you’ll need to decide quickly whether you’re looking for rental yield or capital growth ……or perhaps a blend of both.
What are the options?
Rental yield refers to the money that can be made by renting out a property; it is the monthly profit made on the initial investment, while capital growth refers to the property’s long-term value increase.
In other words, Rental yield is essentially the amount of money you make on an investment property by measuring the gap between your overall costs and the income you receive from renting out your property. A property purchased for £150,000 and yielding £10,200 per year will deliver a gross rental yield of 6.8% (10,200 / 150,000 x 100). To calculate the approximate net rental yield – and to figure out how much profit you will make – you need to subtract all expenses from the annual rental income and divide the result by the property’s cost. For example, in the above example, annual expenses of £1,600 for repairs, taxes, insurance, and fees would result in a net rental yield of 5.73 % (10,200 – 1,600 ÷ 150000 x 100).
Capital Appreciation is the increase in value of your property over time. For example, if you buy a property at £300,000 and sell it five years later for £450,000 then you have seen capital growth of £150,000.
As a rule, current yields in London are lower than those in much of the rest of the country. Market conditions are different all over the country and yields fluctuate greatly depending on geographic location.
It is common for properties with higher rental yields to have lower capital appreciation, and properties with higher rental yields to not perform as strongly on capital value appreciation. Smaller properties at the lower end of the market can sometimes offer good returns and thus a decent monthly income, while their long-term capital growth is less impressive. On the other hand, properties with huge capital growth potential may not offer much rental yield in the short term. As with any investment, there are several factors to consider when considering buying a rental, and anyone looking to make a rental investment must first decide what is most important to them.
If you are an experienced landlord/investor, or looking to enter the buy-to-let market for the first time, Osprey Investments are here to help . We can help you find property in the right area at the right price and make your investment work from day one.
For further information or for assistance in selling or purchasing investment property, contact us via;
Email : investments@osprey-property.co.uk
Landlines: 01572 756 675 / 01780 769 269 / 01482 221 025