Targeting Your Investment Area- The Balance Between Gross Yield and Capital Appreciation

Being an investor in property myself for the last ten years or so this question is always the one at the forefront of my mind and is one of the first questions BTL investors ask when we have discussions about investment in Glasgow. 11 years ago I bought my first BTL in Dennistoun and the 4 years after that I bought a further 4 properties there, all but one of them I still own. Dennistoun back then wasn’t like Dennistoun is now, there weren’t so many cafes/bars and restaurants and it certainly didn’t have the hipster feel to it that it does now. My reason for investment in Dennistoun was, it was 1.5 mile from the city centre, 1 mile from Strathclyde University and a stones throw from the Royal Hospital. Tenant demand was always going to be strong. Second reason was the property types, there were are some magnificent tenements particularly on the “Drives” in Dennistoun. For anyone who knows Dennistoun there are two main streets, Duke Street and Alexandra Parade that run parallel to each other and are separated by 7 streets all of which are “Drives” (Roslea, Finlay, Garthland, Ingelby, Onslow, Craigpark and Golfhill). I identified it as an area that would produce not only a good rental yield but also the forecast for capital growth.

Over the years house prices in Dennistoun have continued to climb and over the last 3-5 years there has been a lot of investment from first time buyers with many savvy property investors changing strategies from BTL to buying to flip ie buying and renovating to a high standard and selling on. Prices now in Dennistoun make higher yields for property investors harder to come by. To give a real life example, in August I sold one of my properties of Craigpark Drive for £166,000. We were getting £750 rent for this, so the gross yield (calculating from selling price) was 5.4%. Buy to let landlords generally look for a minumum 8% gross yield so the return on this investment was no longer viable, hence the reason for the sale.

On the flip side of this I own a property in Tollcross that I have had for the last 6 years. I bought the property for £60,000 and get £500pcm rent for it, so the gross yield is 10%. The value of it has remained stagnant at the £60,000 throughout.

The key to property investing is not only to find an area that you can achieve the high yields required to make it a viable investment for you along with investing in an area and property that you forecast to outperform the market in terms of capital appreciation. In Glasgow at the moment areas that I think will see at this growth as well as offering a minimum of 8% gross yield are Cathcart, Bridgeton, Haghill and Govan.

Thanks for reading, Mark.