High London prices – Capital vs YieldMake Text Bigger
In all the advice provided on this web site it states to target yield of 5%+. In some parts of Greater London, this is simply not achievable due to high house prices.
Is it realistic to buy lower yielding areas where 2 bed flats are £300-£500K with expectations of further capital growth compensating for the lower rental income (these areas have faster capital growth rates than higher yielding areas)? The assumption is that rents will grow over time improving cash flow until refinance.
This would mean I realise smaller income taxes (40% tax shield) and larger capital gains (18-28% tax instead) but more importantly means I can refinance faster for the next deposit and hence grow the portfolio faster.
I would keep 20-25% of all borrowed money available as cash (rainy day fund). As an example we are looking at a 2 bed flat for £330K with expected rent of £1,350pcm, gross yield 4.9%. Gross interest cover approx 1.45 (fixed for 5 yrs).
Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.