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Generating Max Rental Yield v’s Capital Appreciation

20 Jun 2019

This is a really common question – as a buy to let investor, should I concentrate on rental yield or capital appreciation?

In my opinion, I think as an investor generally you should be focused on rental yield – I don’t think that the capital appreciation in Scotland you will see over 10 years will offset a poor yield, so I focus on yield. But don’t be blinded by yield that you forget to look at the property and the surrounding area and consider if anyone will actually want to live there! A balance is best, but more heavily leaning on yield.

Maximum Rental Yield

Let me back up my theory with some figures:

1 bed flat @ £60k generating £475pcm in G51 1 year 5 years 10 years 15 years
Estimated house price increase per annum 2.9%
Return on Investment 12% 62% 124% 186%
1 bed flat @ £90k generating £600pcm in G4
Estimated house price increase per annum 2.8%
Return on Investment 10% 54% 108% 162%
1 bed flat @ £180k generating £800pcm in G12
Estimated house price increase per annum 3.2%
Return on Investment 9% 42% 85% 128%

So as you can see, if we look at average property value increases in 3 areas of Glasgow over the past 15 years the lower value, higher yielding properties offer a higher ROI over the course of short term and long term investments. The increase in terms of yield which is generated by the lower value property offsets the increase in terms of value, so even though G12 offers an increased % in terms of property value at 3.2% on average, versus 2.8 and 2.9% in G4 and G51, it doesn’t make up for the lower yield generated.

So for me, buying 2 properties at £90k in G4 would be more appealing than buying 1 property at £180k in G12, although it may seem more appealing! In terms of pure figures and from an investor point of view, the yield is king!



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