Rental yield and capital growth are two fundamental points of consideration for a first time property investor or landlord. Winkworth discusses both of these vital factors to ensure a smooth transition into the property investment world to make sure you’re fully equipped with the knowledge to smartly invest in your first property.
If you are looking to invest your money in property, you are probably expecting either a decent yield through the income from the rent you will receive or a substantial capital gain in the value of the property when you come to sell it. Depending on where you invest, it is still possible to achieve both, although nothing of course is certain. Taking into account the length of time in which you wish to invest your money may well influence where you buy. Short-term investors should opt for an area that will deliver high rental yields, while long-term investors will want to go for a region of historical capital gains. As a first time landlord investor it is imperative that you consider what is more important to you.
Rental yield, put simply, is the annual return you can expect to make on a property you own through the rental income. To work out the rental yield you will need to know the sale price or current value of a property and the rent that you would expect to take. Your agent should be able to provide you with both. To calculate the potential rental yield on a property take the annual rent and divide it by the property value and then multiply this by 100. A property for sale at £500,000 that has an annual rent of £24,000 would have a rental yield of 4.8%.
Capital gain is the amount that you would make if your property were to increase in value from when you purchased it to the time you sold it. If you purchased a property for £300,000 and sold it 5 years later for £400,000 your capital gain would be £100,000. Asking your agent and researching property prices in the area you are considering investing in should give you an idea of historic capital gains in that region. You should also be aware of the tax implications of owning a rental investment as a second property when considering and calculating your finances. Investment properties that are purchased by those who already own a property are subject to an additional 3% SDLT surcharge, so that’s 8% stamp duty tax if over £250,001, as opposed to the 5% you would pay if you were purchasing your first property.
Across the UK rental yields are generally strongest in commuter belt areas, with capital gains being most likely in towns and cities that are historically highly desirable such as Bath. Chris Baker, Franchisee of both Winkworth Bath and Winkworth Exeter comments; ‘ Investor landlords tend to look at rental yields and Bath property is historically all about capital growth and longer term gain, although we have seen rental yields increase here over the last year. Exeter however is a very different market. Rental yields here are higher than in Bath, at around 6-8%, but the growth of the capital is a little slower, so we do see more investor landlords.’
Over the last 10 years all boroughs in London have seen property price increases so capital gains for investors taking a longer-term view have been strong. However, rental prices have not risen in line with price increases and rental yields have not been so strong; some areas have even seen a decline. Stratford, Crystal Palace, Pinner, Bromley and Wapping all achieved rental yields of over 4.9% in 2017 which - for London - is a good return.
This property located at Hoey Court in London is a great example of an ideal rental investment. Located within a fairly new development close to Devons Road Transport Links, it provides swift access to the City and Canary Wharf. This quick access can demand a generous level of interest and higher than average rent for a one bedroom apartment.
For more information contact Winkworth Bow or call 020 8981 6776.
Situated just walking distance from Winchester’s city centre, this property can provide a strong beginning for any first timer’s investment who is looking to make profit on rent. With a location just moments away from Winchester’s train station, it guarantees simple access into London, and even closer access to the southern sea ports of England.
For more information contact Winkworth Winchester or call 01962 866777.
Located in the lovely and iconic city of Bath, this very spacious property is perfect for any first time property investor who is looking to make capital gain on a long term investment. Just a short walk from the Bath’s city centre, this property provides the perfect location and home for families looking to settle down in the perfect neighbourhood.
For more information contact Winkworth Bath or call 01225 829000.
If you are considering a rental investment get in touch with your local Winkworth office who will be very happy to help you with the process.
Visit here for more information on how to find your local office.