Thanks to Mini, who replied to my request on another topic, we now have a clear description of how to calculate the “traditional” Rental Yield formula.
I thought it warranted a new topic heading, as others may not find this post under the other topic heading.
Cheers and Happy Calculating
Greg F
******************************************
Hi Greg (it’s nothing impressive)There are so many ways of doing it (my way; which is probably the longer way) of doing it is as so:
Weekly rent (170 x 52 = 8,840 annual rent) divided by cost base for property (100,000) multiplied by 100 = 8.84%
Using Karl and Rita’s figures:
170 * 52 / 100,000 * 100
8,840 / 100,000 = 0.0884 X 100 = 8.84Another example:
220 p/w X 52 = 11,440 (annual rent) divided by cost price of say 150,000 – hence
11,440 / 150,000 = 0.0762 X 100 = 7.62%Have fun!!!!
Jo
[/quote]Hi Jo
Awesome! Thanks for your clarity, and your worked examples.Now I know what these RE agents are talking about when they’re trying to impress me with fancy figures about the rental yield of a property they’re trying to sell me which is nothing to write home about.
I can also see how your method compares with the 11 sec formula. Example:
$100,000 property returning $200/week rent
Rental Yield
Step 1: $200 X 52 = $10,400
Step 2:
Dividing by cost of property (100,000), then multiplying by 100 is the same as hopping the decimal point 3 places to the left$10,400 three places to left = 10.4%
Yes!!
Thanxs again, Mini
Greg FGeez, have I ever stuffed up!!
I posted this “new” topic, only to find:
1. The real author (Monopoly) had already posted it lower down the topic list.2. To top this major stuff up off, I compounded it by thanking Mini, when it was Monopoly who replied to my original request.[confused2][glum2][glum][glum][glum][glum][glum]
A thousand apologies to both Mini and Monopoly
Greg F
Originally posted by Greg F:Thanks to Mini, who replied to my request on another topic, we now have a clear description of how to calculate the “traditional” Rental Yield formula.
I thought it warranted a new topic heading, as others may not find this post under the other topic heading.
Cheers and Happy Calculating
Greg F
******************************************
Hi Greg (it’s nothing impressive)There are so many ways of doing it (my way; which is probably the longer way) of doing it is as so:
Weekly rent (170 x 52 = 8,840 annual rent) divided by cost base for property (100,000) multiplied by 100 = 8.84%
Using Karl and Rita’s figures:
170 * 52 / 100,000 * 100
8,840 / 100,000 = 0.0884 X 100 = 8.84Another example:
220 p/w X 52 = 11,440 (annual rent) divided by cost price of say 150,000 – hence
11,440 / 150,000 = 0.0762 X 100 = 7.62%Have fun!!!!
JoHi Jo
Awesome! Thanks for your clarity, and your worked examples.Now I know what these RE agents are talking about when they’re trying to impress me with fancy figures about the rental yield of a property they’re trying to sell me which is nothing to write home about.
I can also see how your method compares with the 11 sec formula. Example:
$100,000 property returning $200/week rent
Rental Yield
Step 1: $200 X 52 = $10,400
Step 2:
Dividing by cost of property (100,000), then multiplying by 100 is the same as hopping the decimal point 3 places to the left$10,400 three places to left = 10.4%
Yes!!
Thanxs again, Mini
Greg F[/quote]
Hey Greg,
Looks like I’m just gonna have to kill ya!!![cigar] No seriously, that’s cool. I don’t mind sharing the spotlight!!!!!
I didn’t realise that you were going to post the NEW TOPIC and mistakenly thought you wanted me to!!!!! Oops sorry [blush2][blush2]….oh well that’s cool………for those who don’t know the formula, they now have it in stereo!!!![lmao][lmao]
PLUS to save some confusion for those poor souls out there who think they are seeing double, I have edited the heading of my new post (so that it doesn’t get mixed up with yours).
Anyways……glad to see you caught on so quickly; it is very easy. I think you may have overlooked one very important step though [worried][worried]
Referring back to the example you used of where the annual rent was 10,400 (to get the 10.4%) don’t forget you MUST divide this 10,400 by the cost price of property, it looks easy to just say 10.4 (moving 3 decimal places) but that is not correct. The decimal places need to be moved after you have DIVIDED the ANNUAL RENT by the COST PRICE, and THEN you can move the decimal places BY 2. Therefore if the cost price here was say 150,000 your theory of moving the decimal 3 spaces wouldn’t work.
Let me show you:
200 x 52 = 10,400
10,400 divided by 150,000
which equals 0.0693 NOW you move the decimal place 2 spaces (to the right) (which is simply multiplying by 100 to give you the percentage)
which would be 6.93%Hope I haven’t confused you.[blink][blink]
All the best,
Jo
Monopoly,
Hello my friend.
You have used a different price to Greg so the calculation can not be the same.
His price was 100 000
so 10 400 divided by 100 000 = 10.4%
Russ.Originally posted by RussH:Monopoly,
Hello my friend.
You have used a different price to Greg so the calculation can not be the same.
His price was 100 000
so 10 400 divided by 100 000 = 10.4%
Russ.Hi Russ,
Thanks for picking up on it; but I did it deliberately.
If you have a look at Greg’s explanation of how he got the 10.4%, although he is right in this case (because it happens to be 100,000), it looks like you can do this with ANY figure. He says that if you move the decimal place (3 spaces) on the annual rent amount, you will get the percentage yield; which as we all know, is not the case (unless it is, as in this case, 100,000).
That is why I changed the 100,000 to 150,000 to make him see the difference.That is, 10 400 = 10.4% (if you divide by 100,000)
But if it is 10 400 (divided by say 150,000) = 0.0693 X 100 = 6.93 %Do you see the difference? [blink]
I hope I haven’t confused him, you or anyone else.
Please let me know if you aren’t sure what I mean, or if I am mistaken.Nice hearing from you,
Jo
Hi Mortgage Advisier,
lol… i think you scared everyone away, but lets say if we punched thoses figures in to an IRR caculator with capital growth at about 10% a year…
… you’d still be well ahead, and over time, the net yeild over the owning mortgage, will increase, and in time blow out both net and gross yield figures that are current…
… but hey, i like your style…
… now, one person can imagine, even the effect and small returns of cashflow positive property. (that dont experience capital gains.)
Cheers,
sisHi M.A.
(hope you don’t mind the abbreviation??)I know what you mean by the time you take into account expenses, interest rates etc etc, it hardly makes buying ANY property worthwhile. But I guess what most people (self included)look at initially is the broader picture, hence the 7.8% (using your example) which of course is not the ultimate deciding factor. I do take into account costs, hence net yield, and the vacancy expectancy rates, plus the CG potential.
What does one do???? I guess you can think about it all, and it is (absolutely) vital, but when you look at the figures, it is a wonder any of us buy anything!!!!
I am being light-hearted about this I know; I do take it very seriously, and yes M.A. it is not a pretty picture when you really sit down and do your sums!!!!
Thanks for the reality check (it’s made me sooooooo happy, NOT) [biggrin][confused2][ohno][bawl]
Just kidding!!!
Jo
Thanks everyone.
I just entered some of your formulas into a EXCEL sheet.
Now I can save loads of time!!
I only need to type
Weekly rent
&
Property costPresto [grad]
AgeBuy new!
Never Sell!Originally posted by agedownunder:Thanks everyone.
I just entered some of your formulas into a EXCEL sheet.
Now I can save loads of time!!
I only need to type
Weekly rent
&
Property costPresto [grad]
Hi agedownunder,
Yep I did the same thing with this formula years ago, and it has come in soooooo handy. Like you, all I type in is either the weekly OR the yearly rent (depending on which one I am informed of) and the cost price of the property, and Excel does the rest!!!! [computer]
Too easy!!!! [biggrin][biggrin]
Jo
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