Are High Yield Properties Too Good To Be True?

Update:  We've moved our blog to www.folkestone-estateagent.co.uk


I'm going to be a bit controversial here, remove my letting agent hat and talk to you as a landlord and a property investor.

I often speak to new and existing landlords who have called the office to ask about a particular property that they've seen for sale online.  I'm always delighted to have these conversations firstly because I'm human and I enjoy sharing my experience and expertise, but also because nine out of ten new landlords aren't yet switched onto this inconvenient truth:

95% of High Yield Properties Don't Deliver on Capital Gain

And that's why I'm so happy to talk to landlords about their potential purchases before they buy them.  For those of you who aren't already nodding your head in agreement, let me explain.


High Yield Properties Tend To Exist on the More Affordable Side Of Town.

Yes, there are exceptions to this rule, but in the majority of cases this is a universal truth.  Taking Folkestone as an example, three bedroom properties are in high demand and low supply in the whole of the rental market, making them an ideal investment opportunity at the right price.  Let's compare two properties, one in the affordable side of town and the other near the fast train to London.

Invicta Road, Folkestone	Limes Road Folkestone
Price: £140,000 (Update: Sold for £138,000*)	Price: £385,000
Expected Rental PCM: £700	Expected Rental PCM: £995-£1100
Estimate Gross Yield: 6% (*6.09%)	Estimate Gross Yield: 3-3.5%

So Invicta Road massively outperforms Limes Road in terms of gross yield, and in fact you could buy two three bedroom houses on Invicta Road for the price of Limes Road and make potentially twice the yield.  Wow!  If you're simply looking for a short term investment which outperforms the bank then Invicta Road is worth a look.

What About Capital Gain Then?

Let's look at two similar properties, of the same size, on the same streets and see how much they've sold for in the last ten years…I know which option I prefer for capital gain.

So there we have it - High Yield and Capital Gain are in most cases mutually exclusive when you go to the extremes.  There is, however a sweet spot in between and other ways to get your capital gain… but that's a story for another day.

If you'd like more information about the Folkestone Rental Market then download our report or give us a call on 01303 212797.