What is Rental Yield and Capital Growth?
The property industry is renowned for jargon - when it comes to property investment, these 2 terms we are asked about regularly.
Here at Newboulds & Co, we often get questions from new landlords on some of the jargon in the property industry – particularly around rental yield and capital growth.
Put simply, rental yield is the return on a property investment from a rental perspective. If the monthly rent on your property is £1000 PCM and the tenancy agreement is for 12months, that gives us a gross income of £12,000. This sum is (hopefully) greater than the costs of owning and maintaining the property, giving us our profit – the rental yield.
Investors can use rental yield as a useful metric when comparing different rental properties, with the yield usually being given as a percentage of the return on investment. This is calculated by dividing the annual rent by the property’s value, before multiplying that figure by 100. E.g. A property valued at £250,000 with a rental income of £12,000 PA gives us a yield of 4.8%.
Capital growth on the other hand, is the amount that the property’s value has increased over time. This is simply calculated by dividing the increase in value since you purchased the property by its original cost and multiplying by 100. E.g. Your property is worth £250,000. You paid £200,000 originally. £50,000 / £200,000 = 0.25 0.25 x 100 = 25%.
We have an extensive lettings portfolio at Newboulds & Co, any questions you have about buy to let we have the experience to offer advice. Please do not hesitate in contacting us.