Yield Versus Capital Growth

It seems a relatively simple question. When buying an investment, should I be aiming for a high yield or good capital growth?

In real terms, it is a much tougher question to answer, and it is something I will discuss with landlords on an almost daily basis because the real answer is that it really depends on your overall investment strategy and what your long-term goals are.

Capital Growth, or in simpler terms, is the (hopeful) increase in value of the property from the point you purchased through to the time that you come to sell. Here in Didsbury, our average house prices have risen considerably over the last five years, and a substantial number of landlords come to us purely for this reason. They are looking to keep hold of their investments and earn a decent rent over a longer period of time, but come time to sell they are hoping to have made the same again in their property's sales price.

Gross rental yield is the rent you will earn per year divided by your purchase price. This gives you a percentage of the purchase price that you will earn in that year. What this doesn’t take into account is any potential service charges, agency fees, legal fees, and taxes. This is where the net yield comes in. Before dividing by your purchase price, you will need to subtract all of your costs from the yearly rental, giving you the overall net yield.

For some of the higher-value areas, especially around Didsbury, the net yield will be lower than some of the surrounding areas, as there is a lot of competition from homeowners looking to move to those locations. Our colleagues in Stockport, for example, will usually achieve an extra 2, or even 3, percent more on their yield.

So the discussion is then if you are looking for a higher instant return on your expenditure or if you are looking to hold on and ride that wave a few years down the line.

Either way, we would be delighted to help with your search, so feel free to give us a call on 0161 249 5160 or drop me an email at markdiamond@julianwadden.co.uk to see what we can offer.