Focus switching to property rental yields as opposed to capital gain

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If you peruse the property market headlines today you will no doubt see a significant switch away from potential opportunities for capital gains back towards property rental yields. That is not to say that investor appetite for opportunities based more on capital gains than rental income has disappeared but the balance is certainly swinging back towards rental yields.

Rental yields back on the agenda

A couple of recent reports have highlighted areas such as Sunderland which offers the best student letting yields in the UK. There also seems to be renewed interest in Manchester which is offering relatively high rental yields approaching 7%. There are other areas of the UK which offer even greater rental yields, some even breaking through the double-digit barrier, but many have been neglected for some time.

In times of political calm many people tend to move towards capital gains opportunities as opposed to “boring” long-term rental yields. However, in light of the recent Brexit vote there is a degree of uncertainty and some investors are now looking towards property investments offering relatively high income yields as a form of safe haven.

Will the markets turn again?

Historically property investors have tended to move towards more capital gains orientated opportunities once the political arena calms, the economy starts to grow again and there is more confidence going forward. The recent decision to leave the European Union is groundbreaking for the UK, and the European Union, some believe it could even be a precursor to a long-term change in property investment trends.

For far too long UK investors have ignored the relatively high rental yields, often available in markets towards the north, in favour of London and property investments in the south of England. There will always be a relative gap between these two areas of the UK with regards to property prices simply because of the economic prospects. The south of England receives more than its fair share of capital investment which has attracted more than its fair share of new businesses and employment opportunities. Therefore, it stands to reason there will be greater long-term demand for properties where employment opportunities exist.

Investors have short memories

In theory the idea of moving back towards higher yielding property investments makes perfect sense as a backbone for a long-term property portfolio. This argument is strengthened when you consider the UK property market is unlikely (at least in the short to medium term) to return to the days of large capital gains seen in the boom times. However, investors often have very short memories even though many will have had their fingers burnt chasing a quick capital gain – they will be back!

There is nothing wrong in short-term trading of property assets in the right environment and when the right opportunities present themselves. However, if you are looking towards a long term career in property investment it makes sense to give yourself a backbone of solid long-term properties with relatively high rental yields. This will help with cash flow and there is nothing stopping you keeping some funds aside for more speculative short-term capital gains based investment opportunities.

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