Understanding Capital Growth and Rental Yield
If you are considering property as an investment, you will be looking for a regular income – the rental yield – and an increase in the value of the property – the capital growth. Over time you would hope that a combination of both would provide you with a good return on your investment.
Put simply the rental yield from a property is the return you are making on a property that you own, or thinking of purchasing. This is used as a measure of value of the property investment. To calculate rental yield you would take the purchase price of the property, or a current market value along with the annual rental income that you expect to receive.
You would take the annual rental income and divide this by the property value or purchase price and multiply but 100 to get a percentage figure. This is your rental yield.
For example, a new property purchase could be £200,000 and your annual rental income £12,000. Your rental yield would be 6%.
Gross and net yields
Gross yield is the rental income as a percentage of the property value. With net yield you’ll need to factor in any costs such as property management fees, mortgage payments, maintenance and insurance.
According to recent figures from Zoopla, Scotland offers the best rental yields out of all UK regions with a 6% yield, with Glasgow offering the best percentage at 8%. Property prices and average rents differ greatly between regions so it’s important to factor this in when doing your calculations and making a decision about where to purchase a property.
Capital growth is also known as capital appreciation and refers to the amount your property or portfolio of properties increases or decreases in value over time.
For example if you purchased a property for £200,000 five years ago and the current value is £250,000 your capital growth is £50,000.
There are several factors that can affect property prices in any given area. As well as supply and demand, any plans for regeneration, transport links, amenities and new homes being built in the area can affect house prices both positively and negatively so it’s important to keep abreast of what’s happening in the area in which you are looking to invest.
Talk to our lettings team to find out more about rental yield and capital growth.
Clyde Property is a leading independent, multiple award-winning estate agent with over 30 years’ experience in selling and letting property in Scotland. Just call your local Clyde Property branch today, for friendly, impartial advice on letting and renting property.