Focus on Rental Yields When Investing in Property
- By Sam van de Schootbrugge
- 8 min read
Summary
- A Federal Reserve Bank of New York paper examines the long-run returns on residential real estate in 15 countries over 150 years.
- While house prices grow faster in large cities, rental returns are as much as 1.6%pa higher in small cities. This disparity more than compensates for the capital gains difference.
- Consequently, the returns on residential real estate are higher outside of ‘superstar’ cities. And buying a property outside such cities would have earned an investor double over the last 70 years.
Introduction
In the US and UK, average house prices have risen more than 20% over the last two years. Even adjusting for inflation, that is still equivalent to around $35,000 credited to the average homeowner during the pandemic. It is undeniable – the residential real estate market has blossomed. But for long-term investors, the question must now be this: where will my investments outperform even if the market slows?
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.