If you have ambitions to become a property developer, or already are a property developer and are looking to do better – then my advice is to focus on the yield only. If you do this – the capital value will almost always take care of itself.
You could be forgiven for thinking that the yield is unimportant if you’ve been watching all those TV programmes about making a fast buck from renovating properties. But the truth is that such opportunities are there for builders rather than investors. It’s true; you can be both if you know what you’re doing. But the experience of the early Noughties’ property boom exemplified how most people didn’t really know what they were doing.
Either – they weren’t capable of doing the actual work in property resonation themselves – or they weren’t really investors and focussed only on the capital value of a property, ignoring the potential rental yield. Buying almost blindly ‘off-plan’ exemplified such errors. Some got lucky, but many got caught out.
But if the rental yield doesn’t make sense from an investment point of view in giving you a decent percentage return on your investment (one which outstrips other reasonably safe investments such as gilts, bonds and relatively safe high yielding shares) then you shouldn’t touch it.
And when you’re working out the rental yield, remember to work out your figures including renovation and replacing furniture if it’s fully-furnished.
The sofas UK customers want, for example, changes all the time – and you’ll need to keep the place up to date in all regards to ‘sell’ it to increasingly discerning tenants in a renter’s market.
And it isn’t only about today’s yield either. Try and guess what the yield in these alternative investments is likely to look like five years from now. If it still makes sense, then great, go for it. If not, walk away. You may or may not get the capital rise; who can really tell? But by focussing on the yield alone, you won’t go far wrong.