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Martin Callaghan
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May 07, 2019

The Typical (and Exceptional!) Returns When Investing in Property

Property Investment Returns-1Whether you invest in property, stocks & shares, pension funds, start-ups or any other type of investment vehicle, it’s a given that you’ll want to know what returns are possible before proceeding with your investment.

Some investors will seek short term gains, while some will look for an investment which provides a return over the medium to long term and it's important to know where you sit on this scale.

Unless you intend to carry out flips (buying a property and adding value by means of refurb before then selling on at a higher price), property investment is very much a medium to long term strategy.

Read more in Our Ultimate Guide to Property Investment

The real value in property investment is in holding the asset and enjoying the long-term capital growth that can be achieved. However, that doesn’t mean that you won’t benefit from notable returns in the short term too.

We’ve detailed the numbers here on a standard buy to let investment to let you see at first hand the kind of figures that are achievable.

Yield (Short-Term Gain)

Your yield can be defined as your annual rental income expressed as a percentage of the property’s value. This can help investors determine the potential incomes and cash-flow of any investment.

For example, a property purchased at £140,000 which achieves £750 per month in rent will provide a yield of 6.42%. This is calculated by dividing the annual rent return of £9,000 (i.e. £750 x 12) by the purchase price of £140,000 and then multiplying by 100 to give a percentage.

It’s important to note that this is a gross yield figure (i.e. before any costs have been deducted) - to establish your net figure you should take into account any costs such as letting agency fees, factors fees and any mortgage payments that may apply.

Capital Growth (Medium to Long-Term Gain)

In addition to annual yield, property investors stand to gain substantially in the long-term in terms of the capital value of their property - so long as they have bought wisely at the beginning.

In the latest figures published by Hometrack (March 2019) average UK properties values have grown by 1.7% since March 2018 – these figures in isolation aren’t exceptional, however when taking a closer look it’s clear to see where real value can be found.

Cities such as Glasgow, Manchester and Liverpool have all comfortably outstripped UK averages and have experienced far stronger annual growth of 5% + during that same time period, emphasising why so many investors are now looking north of London for their next property investment.

In terms of the investment properties we identify for clients here in Glasgow, our job is to look beyond the averages and we frequently secure properties which are currently growing at somewhere between 6% - 8% for our clients.

In terms of the returns, this can be best outlined by the below figures, again based on investment at £140,000. We’ve taken the average growth at 5% here but as noted we would expect to outperform this:

Initial Property Value: £140,000

  • Value after 1 Year: £147,000 (an increase of 5% on original investment)
  • Value after 3 Years: £162,067 (an increase of 15.76% on original investment)
  • Value after 5 Years: £178,679 (an increase of 27.62% on original investment)
  • Value after 10 Years: £228,045 (an increase of 62.89% on original investment)

(Use our FREE Property Investment Calculators to make your own calculations on what’s possible).

These incredible figures show just what can be achieved in property investment when done correctly and it’s no surprise that it remains one of the most popular asset classes for investors.

The numbers above are all possible due to the phenomenon that is compound interest and we discuss this in more detail in our Fundamental Advantages of Investing in Property article.

Working with a credible property investment partner can ensure that you receive accurate forecasts on future property growth. We always recommend a medium to long term strategy as statistics show this will always deliver strong returns with the right properties in the right areas.

Some property investors employ a strategy which will simply focus on yields in an effort to “beat the banks” (currently offering interest of around 1% - 2%) whereas some investors will simply buy for capital growth.

Our objective however is to help our clients achieve high yields AND strong capital growth which are both very possible with the right approach.

To discuss your own property investment plans and what we can do to assist simply click the link below to arrange your FREE property investment consultation.

Book Your Free Property Investment Consultation

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