Understanding Capital Growth and Rental Yield

Latest News/23.07.2020

It’s important as a property investor that you make a good return from your investment. This can be from rental yield which gives you regular income, or capital growth which is the increase in value of the property over time. Your return could be from either one or both of these things.

Capital growth

This is also known as capital appreciation and refers to the increase or decrease in the value of your property or property portfolio over time. If you purchased a property four years ago for £200,000 and the current value is £250,000 then your capital growth is £50,000. There are lots of factors that can affect your capital growth such as the economy, local regeneration, new transport links, low mortgage rates boosting demand in new homes and lack of supply. It’s important to invest somewhere that property looks set to increase in value and you can usually get this information from property experts and literature surrounding what’s happening in the general property market and also within each region.

Rental yield

Rental yield is the return you make or expect to make from your property. To work out the rental yield for a particular property, 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 or purchase price. To convert this figure to a percentage, you will need to multiply this by 100. This percentage is your rental yield.

For example, your new property purchase would give the following rental yield:

Annual rental income: £10,000

Purchase price: £200,000

Rental yield: 5%

A gross yield is when you take the example above and work out your rental yield. If you are trying to work out your net yield, you will need to take into account other costs such as your insurance, mortgage repayments, letting management fee and maintenance costs.

Location

Each city and region across the UK differs in terms of rental yield as average rents vary. Recent research has shown that rental yields in Glasgow in particular are higher than in other regions.

If you are looking to invest in a rental property, talk to us at Newton Lettings as we can advise you on the rental value of property across Central Scotland.