http://www.chicagobusiness.com/realestate/20140430/CRED03/140429718/one-number-that-will-help-you-decide-whether-to-buy-or-rent
Obviously, the higher the rental yield, the more you should buy and not rent. Hence, for example, you should buy a place that gives you a rental yield of 7%, which is usually an old house near good transport links off the centre of CBD, and rent a luxury house with a sea view yielding only 2%!
But more importantly is the direction of rent. If the yield is very low, but rent is growing rapidly, e.g. 8-10% pa, it indicates high demand and severe shortage and it is worth investing because yields could rise rapidly and after a few years, capital gains too.
But if rent is stagnant or falling, it indicates a lack of demand or over supply. You should rent not buy, because you can then ask for a lower rent with each passing year.
Remember: Capital Gains is what make you wealthy. Rental yield is a safety buffer that enables you to pay your mortgages in good and bad times.
Obviously, the higher the rental yield, the more you should buy and not rent. Hence, for example, you should buy a place that gives you a rental yield of 7%, which is usually an old house near good transport links off the centre of CBD, and rent a luxury house with a sea view yielding only 2%!
But more importantly is the direction of rent. If the yield is very low, but rent is growing rapidly, e.g. 8-10% pa, it indicates high demand and severe shortage and it is worth investing because yields could rise rapidly and after a few years, capital gains too.
But if rent is stagnant or falling, it indicates a lack of demand or over supply. You should rent not buy, because you can then ask for a lower rent with each passing year.
Remember: Capital Gains is what make you wealthy. Rental yield is a safety buffer that enables you to pay your mortgages in good and bad times.
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| Old and Cheap Houses in Central Locations That Nobody Wants to Live in. But If Prices Are Low, Demand for Cheap Rents is High, Then Capital Gains Usually Follow. |
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| Investing in Luxury Holiday Homes are Often Hit and Miss Affairs because rental income is inconsistent. If you have a mortgage and fall in hard times, you may find it difficult to hold on to the property in bad times |
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