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Capital Growth and Rental Yield

Sunday, October 29, 2017

If you are thinking of investing in property you are probably looking for one of two things: a regular income (rental yield) or for the value of the property you buy to increase over a period of time (capital growth). Over time there may even be a combination of both.

What is rental yield?
Quite simply, rental yield is the return you are making, or expect to make, on a property you own or are thinking about purchasing. Property investors and landlords use rental yield as a means to monitor the value of their property investments and portfolios.

How do you calculate rental yield?
To calculate rental yield you will need to know the purchase price of the property, or a current market value, and the annual rental income that you expect to receive. Take the annual rental income amount and divide it by the property value/purchase price. To convert this figure to a percentage, you simply then need to multiply this by 100. This percentage is your rental yield.
For example:
Annual rental income: £6,000 Purchase price: £100,000 = 6% yield 

What is the difference between gross and net yields?
A gross yield is when you take rental income as a percentage of the property value, as in the example above.
With a net yield, you also need to take into account any other costs you may have such as insurance, mortgage payments or maintenance.

Capital Growth
Capital growth, also known as capital appreciation, is the amount your property or portfolio of properties increases, or decreases, in value over time.
For example:

  • Purchase price £100,000
  • Current value £125,000
  • Capital growth £25,000

There are many factors that can affect property prices in a given area on top of general market supply and demand for housing. If there are plans for regeneration, new infrastructure, transport links or investment in an area this can have a positive effect on future prices.

Article taken in part from www.rightmove.co.uk

Important Information
All property sales and the financial advice that surrounds them are as unique as the people engaging in the transaction. It is important to not make a decision without seeking professional advice. If you want to sell your home and are considering redecorating before marketing, speak to one of our Property Professionals to get the best advice for presenting your home for sale before making any investment.   
 

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