The Age Old Question: Capital Growth Or Yield?

Landlords and investors never tire of this debate. Everyone has a slightly different take on it, and your approach should also fit your personal circumstances. Where you stand on this spectrum will depend your attitude, knowledge, experience, and risk profile.

Should I go for yield (or cash flow) or capital growth?

I get this question a lot. In fact it’s one of the most asked questions I do get. The most common chestnuts being ‘Where do I buy’ or ‘What do I buy?’. If I had a pound for every time I had these…! (I’ll cover these in a separate blog, read on!)

The answer is – it depends.

You’ll need to be clear on a few things before we get going and buying the first property we see that we like the look of!

What are you trying to achieve? Why are you investing in property in the first place? What are your long term goals? What are you going to do with the cash flow?

We need to understand what your strategy is first. And if you don’t have one, you need to get one! Don’t spend any money until you have got this nailed.

Let me illustrate with a couple of examples.

Example 1 – Mr Armstrong

A customer of ours, Mr Armstrong (39 years old), has an executive’s job and works for a large Interior Design organisation. He overseas their business development in South East Asia. He’s from north Leeds but travels a lot but is based in Jakarta, Indonesia for most of the time. He therefore doesn’t have a great deal of time to spend on his properties here, and we look after them for him. He earns a very good salary and does not need the cash flow each month from his properties in the UK. He works very hard and although he enjoys his job he wants to enjoy an early retirement. He definitely doesn’t want to work until his 60’s! He understands that property appreciates significantly over the long term and he knows that his properties will give him the freedom of time and money for his early retirement. He knows the relatively affluent north Leeds area well and feels comfortable buying there, even though he understands the yields may be higher elsewhere. He’s happy to wait for long term capital growth, provided the rent covers his mortgage and his other costs in the meantime.

Example 2 – Miss Peters

Miss Peters (28) works in Marketing in London but doesn’t like her job. She’s from North Yorkshire originally and her parents have a couple of properties which have given her an interest from an early age. She’s getting tired of London and knows she wants to move back up north with her partner and to start a family in the next few years. She’s been on a few property training courses and is full of excitement to start investing and growing a portfolio. Once she has replaced her income she then plans to retire from her job and be a mum and a Property Investor. One of things Miss Peters learned on her training courses was that cash flow is predictable and capital growth is not. She believes investment decisions should be made on predictable results and therefore is driven by yield and cash flow. She sets her financial targets and goes shopping understanding she won’t be buying in the most affluent areas.


Clearly these examples are opposite ends of the spectrum. In truth most people sit somewhere in between and aim for a mix of yield and capital growth. This is a sensible approach and gives a more balanced approach to risk.

Capital Growth Strategy – Pros

  • Can provide you with a sizeable pension pot in later life
  • Higher calibre/lower risk tenants

Capital Growth – Cons

  • Although capital growth is very likely over the long term, it is a long-term strategy and does not have a predicable outcome
  • Low yields
  • Low cash flow

Yield Strategy – Pros

  • Predicable results
  • High cash flow

Yield Strategy – Cons

  • Slow capital growth
  • Lower calibre/higher risk tenants

Let us know where you sit on this spectrum in the comments below