capital growth v rental yield

Before investing in property, it is vital that you are familiar with these terms and understand what you want to achieve from your property investment

What does “rental yield” mean?

The term rental yield is used to determine how much profit you will make through renting out your property.

To calculate a rental yield, you will take the annual rental income amount and divide it by the purchase price of your property. Then you will times that by one hundred.

Gross Annual rental income        £6,000

Purchase price                                 £80,000

Formula                                             6000 / 80000 x 100

= 7.5% is the rental yield

High rental yields are attractive if the investment is classed as commercial, such as a hotel room or student property investments. These types of investments often offer high rental yields as capital growth is expected to be limited. They are usually kept for a set number of years and then sold back to the company or a company such as One Touch Property can help with the resale of your unit. We have testimonials from many of our clients who we have successfully helped with the resale of their units. One example is Patricia Readshaw. We managed to sell her student property units at a higher price, and she used the extra money to visit family in Australia.

Here at One Touch Property we work hard to help you achieve your financial goals. Like Patricia, you can also use UK property investment as a way to make extra income so you can do the things you have always wanted to do.

What is capital growth?

Capital growth is how much your property will increase in value over time. This can be due to many factors such as regeneration in the area, job growth and improved transport links. Generally, buy to let investments are more likely to achieve levels of capital growth. This is isntead of commercial property investments because there are available to a larger pool of potential buyers, and increased demand means an increased price. Investors extract the level by remortgaging and acquiring more property. By choosing properties in areas with good capital growth fundamentals, investors would be able potentially acquire another property every five years. In general, buy to let is linked to capital growth properties.

You really need to analyse an area as population growth does not necessarily mean capital growth. It needs to be the perfect balance of an attractive property type in an increasingly attractive location, with a sizeable population who are looking to buy and have enough income to be able to do so.

Investors will need to research the area to discover the demographics and whether there are any proposed regeneration projects. You would also need to consider taxes such as stamp duty which will be 8% on properties over the price of £250,001 if it is your second property. That will affect the amount of capital growth.

One Touch property investment researches the best areas for capital growth and our buy to let investment sector guide can empower investors to make better investment decisions.

Buying a property to achieve good levels of capital growth is seen as a long-term strategy. It is unlikely property will increase a significant amount in a year or two, and it would be worthwhile to hold onto the property for a while to maximise capital gains. This is especially the case if you are trying to off-set the tax implications of purchasing a second property.

The expert team at One Touch Property have many years of experience in sourcing UK property investments and providing guidance to investors to match them with a UK property investment that will suit their financial goals.

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