Friday 13 February 2015

Capital Appreciation vs Rental Yield

It’s an age-old debate: do I buy something “nice” and hope for long-term capital appreciation, or do I buy something a bit less easy on the eye and get a brilliant rental yield?

Take this property as an example:

At first glance it appears to be a spacious three bedroom property with private garden.  On a second look we realise it’s a usually avoided high-rise tower block.  But wait, we have 3 double bedrooms in zone 2 with excellent transport links to the City, and just a stone’s throw from Battersea Park.

So what makes this such a wise investment?  Surely investing in a Victorian property is a more attractive proposition?  Let’s look at this in more depth, comparing with a 3 bedroom Victorian mansion block flat on Prince of Wales drive, just around the corner. 

Bought for £470,000 in 2001 and sold for £790,000 in 2010 the Victorian flat has seen price growth of 5.7% a year.  Average rents at the time of purchase would give a yield of 5% a year.  How does that compare with our ex-local flat?  Bought in 2001 for £82,500 and sold in 2011 for £144,000 it’s seen 5.7% a year price growth as well.  And the rental yield?  At the time of purchase you’d be enjoying a 15% return on your investment.

With identical price growth and a far superior rental yield, it’s easy to see why investing in ex-local authority properties is the thing to do.  Once you factor in the running costs associated with period properties (endless repairs, high service charges – for mansion blocks that is - , costly lease extensions etc.) investing in ex-local authority flats becomes an even more attractive proposition.

For ultimate peace of mind and a truly hassle-free investment I’d suggest asking your lettings agent to look after your property for you.  Naturally XanderMatthew offers a full management service.  To find out what we can do to make your life easier, just give us a call on 020 3397 2099.

If you have any investments you’d like to run by me to see what they’d yield long term, do get in touch.

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