Invest for yield or capital appreciation?

by Readers Question

10:10 AM, 12th October 2015
About 3 years ago

Invest for yield or capital appreciation?

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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.income or growth

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



Comments

Neil Patterson

10:14 AM, 12th October 2015
About 3 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?

Jon Pipllman

11:01 AM, 12th October 2015
About 3 years ago

I'd take the one in London at £225k with rent £12,000 per month 😉

Neil Patterson

11:05 AM, 12th October 2015
About 3 years ago

good spot Jon and amended 🙂

Mike W

11:44 AM, 12th October 2015
About 3 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!

Christopher Marsden

21:40 PM, 12th October 2015
About 3 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 ?

John Jiang

18:33 PM, 17th October 2015
About 3 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.

Jonathan Clarke

22:58 PM, 17th October 2015
About 3 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


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