Maximising Returns: A Guide to Rental Yield and Capital Growth

If you're thinking about investing in property, you’re likely aiming for either regular income (rental yield) or an increase in your property’s value over time (capital growth)—or perhaps both. Here’s a quick rundown of each, and what they mean for property investors.

Rental Yield

Rental yield is essentially the return on investment you’re earning or anticipate from a property. Landlords and investors use this as a key metric to assess the performance of their investments.

How to Calculate Rental Yield: To calculate yield, you'll need the property’s purchase price (or current market value) and its annual rental income.

1. Take the annual rental income.
2. Divide it by the property value or purchase price.
3. Multiply by 100 to convert to a percentage.

Example Calculation:
Annual rental income: £6,000
Purchase price: £100,000
Yield: 6%

This calculation is known as gross yield. Net yield, however, considers additional costs like insurance, mortgage payments, and maintenance, giving you a more accurate reflection of returns.

Regional Variations:
Rental yields can vary widely across regions due to differences in property values and average rents. For instance, Norwich might yield a different rate than Durham, so it’s essential to consider location when assessing a property’s potential return.

Capital Growth

Capital growth (or capital appreciation) is the increase in a property’s value over time. It’s impacted by a mix of factors, including local regeneration efforts, new infrastructure, or transport links, which can enhance the attractiveness and value of an area.

Example of Capital Growth:

• Purchase Price: £100,000
• Current Value: £125,000
• Capital Growth: £25,000

Both rental yield and capital growth are crucial elements for investors, as they reflect both short-term returns and long-term wealth building potential in property investments.