Capital or Yield? 1st Jun 2017

Your buy to let property is there to make money for you, and as such should be run as a business. However it is very important from the outset to be clear on what you want from your asset, as there are 2 ways in which you can earn from property investment. Capital growth, or capital appreciation is the increase in the value of your property over time. Rental income is the rent paid to you monthly by the tenant. If you divide the annual rent into the purchase price of the property and multiply by 100, this gives you your yield or annual return.

For example, if a 2 bedroom property in Penicuik is purchased for £135,000 and achieves a monthly rent of £750, the rental yield would be 6.66%.

Taking a 2 bedroom flat in Edinburgh city centre with a purchase price of £225,000 and a monthly rent of £895, the rental yield would be 4.77%.

The yield is a hugely important consideration before investing, as it will help you decide whether the property is worth investing in. However you should also consider the potential for capital growth, or indeed depreciation. This may be dependent on factors such as property location and type.

Looking at the above example, it can be seen that different areas will give you varying yields. Typically in Edinburgh, for example, a 2 bedroom city centre flat will give you a lower yield and higher capital growth, than its Penicuik equivalent. However if yield is what you are looking for then the Penicuik property (which will still grow in capital) is the better investment. In making your decision you need to consider your personal circumstances, and what you want to achieve from your investment. On this basis, it is always worth considering investing in areas you may not be familiar with. The Key Place can give you full advice so that you are still confident in your buying decision.

If you are a buy-to-let investor looking at expanding your portfolio, you should consider spreading your risk to keep you safe. It may be worth thinking about different areas and different property types, not just sticking with what you know. That way, if that market dips in one area for any reason, you will be less exposed.

Once you have worked out your budget you need to decide what sort of property you want to buy and where. What sort of tenants live in that area. For example, there is no point in buying a property to let to students if you are miles from any colleges or universities. Another way to increase the capital and yield of your property is to invest in something that can be improved through renovation. Perhaps converting a 1 bedroom flat with a dining room into a 2 bedroom flat would be possible with only minor alterations, and you will achieve higher rent. If you have the budget, House in Multiple Occupation (HMO) properties are a great investment if in the right location (see accompanying newsletter on HMOs).

You should also consider whether you want to become a full time landlord, looking after the property yourself and dealing with emergency repairs at 3am, whilst trying to work out which new piece of letting legislation will affect you directly. Or would you prefer to keep the day job and have a reputable letting agent manage the property for you, allowing you to relax knowing your investment is in safe hands? You should certainly not consider buy-to-let without understanding the buy-to-let market, and all the risks and rewards associated with it.

The Key Place is market orientated and, for buy to let landlords, can offer information and advice on how much properties are worth and where your next buy to let opportunity could come from. Check out the following blogs for vital buy to let information and opportunities:

If you would like advice about investing in local markets, wish to enquire about The Key Place Investment Analysis Reports, Property Sourcing, Residential Lettings or Property Management services, please do not hesitate to contact us now.