Invest for yield or capital appreciation?
I have taken 90k of equity of my current property. But I am in small dilemma on how to invest it.
Option 1: buy four properties worth 80-90k, each renting around £450 – £500 pm, but will not be able to recycle the cash as the capital appreciation is poor compare to London. So will be with just four properties until I save up for another property.
Option 2: buy 1 in London (where I am based) worth 225k, with rent around £1100 – £1200, doesn’t have great yield but better monthly profit and also house prices are escalating meaning I can ‘easily’ take money out for another investment.
I would really appreciate some opinions from fellow members as to what you would do in my position.
Jonathan
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Member Since February 2011 - Comments: 3454 - Articles: 286
10:14 AM, 12th October 2015, About 11 years ago
Hi Jonathan,
There is never a one size fits all answer.
Can we ask why you are investing in property, what are your short, medium and long term goals. How do you expect your circumstances to change over time?
Member Since August 2015 - Comments: 287
11:01 AM, 12th October 2015, About 11 years ago
I’d take the one in London at £225k with rent £12,000 per month 😉
Member Since February 2011 - Comments: 3454 - Articles: 286
11:05 AM, 12th October 2015, About 11 years ago
good spot Jon and amended 🙂
Member Since September 2013 - Comments: 217
11:44 AM, 12th October 2015, About 11 years ago
Hi Jonathan,
I would get out my excel spreadsheet and make some forward estimates regarding house prices, maintenance costs, interest rates rents etc. I would test that model over say 10 -25 years (depending on your requirements). I would look at the results and ask myself do I really think that London house prices will continue into the future in the same manner as the past. Particularly with the chancellor’s changes to taxation of property (tax and stamp duty) for residents, non residents, etc.
You will get your answers from the spread sheet.
You may wish to become non resident!
Comments: 11 - Articles: 1
9:40 PM, 12th October 2015, About 11 years ago
I have been invested in SE London for the last 2 yr’s earning £1200 pm
But the flat cost £260k . The capital gain would appear ( flats in the next block advertised at well over £300k ) , to be well beyond our expectations and I cannot see it continuing at that rate.
I agree that your investment horizon is key with regard to returns . I think we will be selling in the next couple of years.
Would you be prepared to say where in London you are achieving that gross yield ?
Member Since October 2015 - Comments: 1
6:33 PM, 17th October 2015, About 11 years ago
Hi Jonathan,
It depends on your investment strategies. Properties investment mainly focus on capital growth and rental yield. In the UK, some of areas are high capital growth but with low rental yield e.g. London; some of areas are low capital growth but with high rental yield. I think you d better keep a balance of your properties portfolio.
Do more research, for buy-to-let, the areas invested normally looking at at least 5 to 10 years. Keep sufficient cash to prevent unforeseeable future.
Member Since June 2013 - Comments: 588
10:58 PM, 17th October 2015, About 11 years ago
Or perhaps there is an Option 3
Buy four properties worth 80-90k, each renting at around £550 – £650 pcm ( certain conditions permitting ) in an area where the capital appreciation is good not poor
It spreads your risk and gives you four opportunities rather than one to buy well and then force appreciation through a refurb and then release equity to buy more
That`s what i would be tempted to do and thats what I did do at various times with my own portfolio as I built it up