Rental Yield and Capital Growth

August, 2019

Here at Newboulds & Co Estate Agents in Shepperton, 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 properties 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 properties value has increased over time. This is simply calculated by dividing the increase in value since you purchased the property by it’s 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%.

As a new landlord, it's key to have an experienced guide when navigating the world of property - Newboulds & Co are more than happy to help!

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