Rental Yield or Capital Gain?

Written By PropertyLoop
February 15, 2021

Landlords will understand that there are two ways in which their rental property can generate returns. Perhaps the most obvious s rental income, synonymous with the sector and essential for landlords. However, landlords should also be mindful of capital appreciation and how this will be able to benefit them in the long term.  

What Is Rental Yield?   PropertyLoop

What Is Rental Yield?   

Put simply, rental yield is an estimation as to how much income a rental property will be able to generate a landlord. This annual rental income is represented as a percentage of the market value of the property, giving owners the largest indication as to if their investment will be profitable.  

Is Rental Yield Important?

Knowing the rental yield that a property will be able to generate will allow landlords to understand if their rental income will be sufficient to cover any insurance policies, buy to let mortgage payments, letting fess, management costs, repairs and the many other expenditures that come with letting a property.  

How to Calculate Rental Yield

Owners are able to simply calculate the rental yield of a property through taking their annual rental income for the accommodation and dividing this by the market value of the property. Once the resulting figure is multiplied by 100 owners will have their rental yield as a percentage. 

However, this calculation will not take into account the various costs landlords will encounter when letting a property. For these expenditures to be accounted for landlords will need to calculate the gross rental yield of their property; in order to do this simply deduct annual expenses from the yearly rental income of the rental.  

Rental Yield or Capital Gain?PropertyLoop

What Is a Good Yield on Rental Property in the UK? 

Typically, landlords look to see around 6% to 8% in rental yield on their property. With this being said the location of the rental opportunity alongside current demand for rental properties will be significant influences on the amount a landlord can request their tenants pay in rent, and in turn the rental yield they will see from the property.  

What Is Capital Appreciation?   

Sometimes referred to as capital growth, capital appreciation is the amount a landlord would see in profit on the sale of their rental property. Of course, there is no guarantee that the market price of the rental opportunity will increase, but landlords that improve the energy efficiency of their rental, keep the property in good repair and are well placed in a desirable location will be set to profit.  

Best Locations for Capital Gain  

Top of the league for capital gains investment in the UK between 2018 and 2019 (again, England and Wales) was the southern city of Canterbury with 7.83%. Next was Sutton, 6.47%, Coventry with 6.36%, Stockport, 6.34% and Stevenage, 6.15%. Last on the list of 10 was the former seaside resort of Southend on Sea with a rental yield of 4.89%.

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