Yield vs. Capital Appreciation
04/02/10 23:00 Filed in: Real Estate
One must remember that the buy-to-let (BTL) sector is
still pretty young. If the business sector then we
are talking about a 15 year old teenager. This means
that business concepts that would be well understood
in other sectors or rental housing rules of thumb in
the US are novel ideas still in the UK BTL sector.
A London newspaper published an article recently highlighting the difference in terms of gross yields achievable across London. What emerged is some areas have a higher ratio between the gross scheduled rental income on an annual basis vs. the purchase price for the property. In other words there were some areas where the premium for owner occupancy is smaller. That there are some areas where owners prefer not to live so the rental income is higher relative to the price of the property.
The article does go on to mention that in many cases the opposite is true if you are focused on capital appreciation. The areas with the best appreciation are some of the areas with the your income yields.
It is rather simple when you think about it. Common sense some would say. The areas where home owners really want to live are the same areas that are going to have higher prices relative to what a tenant will pay. Tenants will pay a bit more for a better area but tenants will only pay so much as they know they are not staying long. Better to pay a bit less and save some money. When it comes time to buy you are making a bit of a bet on appreciation and you really want to live in the better areas given you expect to be there for the long term.
The full article is at the link.
East London is best for quickest buy-to-let returns
John Corey
A London newspaper published an article recently highlighting the difference in terms of gross yields achievable across London. What emerged is some areas have a higher ratio between the gross scheduled rental income on an annual basis vs. the purchase price for the property. In other words there were some areas where the premium for owner occupancy is smaller. That there are some areas where owners prefer not to live so the rental income is higher relative to the price of the property.
The article does go on to mention that in many cases the opposite is true if you are focused on capital appreciation. The areas with the best appreciation are some of the areas with the your income yields.
It is rather simple when you think about it. Common sense some would say. The areas where home owners really want to live are the same areas that are going to have higher prices relative to what a tenant will pay. Tenants will pay a bit more for a better area but tenants will only pay so much as they know they are not staying long. Better to pay a bit less and save some money. When it comes time to buy you are making a bit of a bet on appreciation and you really want to live in the better areas given you expect to be there for the long term.
The full article is at the link.
East London is best for quickest buy-to-let returns
John Corey
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