If you are considering investing in Salford student lettings, two phrases will have popped up more than any others; capital growth and rental yield. But do you know what they mean? In this blog post, we break down the difference between the two; understanding these phrases is key to successful investing.
Rental yield refers to how much profit you will make by renting out your property. There’s an easy way to calculate it too. Just divide the annual rental income amount by the price for which you plan to purchase your property. Times your result by 100. Now you have your rental yield value.
Here’s an example:
You buy a property for £90,000. Your gross annual rental income is £6500. Your rental yield is therefore (6500/90,000) x 100, which gives a value of 7.2%.
You can expect particularly high rental yields in the student rental sector. At Mistoria Estate Agents, the rental yield on many of our Salford student lettings is far higher than can be achieved on a traditional Buy-To-Let (BTL) property. This is because when you rent out an HMO, or ‘House in Multiple Occupation’, to students, you are able to collect rent from every tenant. This is not possible in a conventional BTL property, in which you might only receive one monthly payment.
Capital growth is the value by which your property will increase over time, from the point of purchase to the point of sale. So if you buy a property for £90,000 and sell it five years later for £120,000, the capital gain is £30,000.
There are many factors which affect this value, from potential area regeneration to new transport links. Researching the area in which you wish to invest is key if your ultimate goal is capital growth.
Investors should note that population growth does not necessarily lead to capital growth. You need a combination of an attractive property type, an increasingly attractive location and a large population with the finance to be able to buy property. Investors should research locations to see if any regeneration projects are in the pipeline and what the demographics are in a certain area. Investors should also be aware of stamp duty which now runs at 8% for properties over £250,001 if it is a second property.