What’s this yield thing?
In RE agentcy windows all the time it says this property is 7% Yield, 10% Yield, 6% Yield. I estimate they use this figure to make people think it’s 7% profitable or something, but it doesn’t make sence to me.
What’s the Yield mean to you?
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Positive Cashflow Financial Analysis Calculator OnlineIt means annual rent divided by purchase price times 100.
Not as accurate as other investments as there are many other costs not factored in. useful only to compare properties very roughly.
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked! 6.85% Rate!!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks for that. Now I know how to calc the yield.
Ok, if a house was worth 100,000 and the rent was 100. The Yield would be 5.2%. And actaully any house that has a rent amount the same as the first three property buying price figures, will be 5.2% Yield.
In terms of a Positive Cash Flow property I know that a house 100,000 and rent of $100 would be way in the negative of around -18% CoCR or -$80 a week in expenses – lose.
Ok so I know how to calculate the yield. Now why calculate the yield? What is it about a yield that tells you about a property?
Jaffa,
Sometimes I just go on a $$ amount, rather than yield. For example, I know of a house that was sold for 26k recently. It wouldn’t be hard to get a 20% yield on it – but that’s only about $100 a week. It would be eaten up by repairs, PM costs (it’s remote), and other costs, so for me, it wouldn’t be worth. Actually, it might only yield $60 a week- that’s a 10% yield, but why would one have the stress of that when one still has to pay off the asset and then do repairs and pay costs? I think the money would be better off in ING personally.
One of my properties has a 9% yield and gets 3 times less than another of my properties with a 6% yield. When i look at the $$ amount coming in, I can’t help but think I am doing better with the poorer yielder, although that’s obviously not the case
))Really though, I’d rather the cash coming in on my 6% yielder, than have the rural property I first mentioned. Yield is not everything. I may lose money on the 6%’er… and it’s possible I may gain a buck or two on the rural house (it would literally be a buck or two @ 10% yield), but I know which property makes me feel safer.
kay henry
Originally posted by Jaffasoft:In terms of a Positive Cash Flow property I know that a house 100,000 and rent of $100 would be way in the negative of around -18% CoCR or -$80 a week in expenses – lose.
The yield tells you what you have just described, whether it is going to be negative, neutral or positive geared. How much you get in the form of rental return is a integral part of this type of investment vehicle, and I can’t see how anyone would buy a property without knowing what kind of yield/return they will be getting (either gross or net)!!!
The yield will not however, tell you if the walls have structural damage, whether the foundation needs re-stumping, the floorboards are have rotted away.
Yield is strictly for FINANCIAL information.
Cheers,
Jo
Yeah, i can see what you mean buy looking at the money because a house yielding 14% and anther house yielding 14% may be giving you two differant cashflows one might be $20 +CF and the other might be $60 +CF because the house is more expensive and the rent higher. So the amount of money you may be making is higher but the yield may be the same as the lesser property.
I seen a property the other day for 35,000 (but sold for 30,000) and would probably rent for $70 a week, but was a bit to far out back N.S.W.
I might put a little thing in my calculator that shows the yield. That could serve as a learning thing!!
Yield is important in determining whether you should invest in property A or B – similar properties in the same price range, but different maintenance costs/overheads, for example.
Furthermore, a property’s yield can be compared with other investment options, i.e. stocks and bonds, a business’s cash flow, term deposits, etc, to determine the most profitable – take into account risk, liquidity, etc.
For example [2 year holding period], a property in a flat market demonstrates a 6 percent yield. A term deposit offers a 5 percent yield. The option I would choose is the term deposit due to the ability to easily liquidate this investment.
If an investment is held for, i.e. 12+ months, inflation should be factored into the projected yield.
— Michael
The yield probably has more relevance with regard to Commercial property.
In this instance the tenant pays all the outgoings so the yield has a relevance to the asking price or the value of the property.
Usually the rent is capped up by the yield to determine the value of the property.
Example: with an annual rent of $100,000 and a yield of 8% the property is worth $1.25 million.
Divide the rent by the yield to get the value of the property.Therefore yield is critical to determining the value, especially on commercial property.
Usually rents are fixed so you negotiate the price of the property based on what yield you expect.
There is a benchmark yield for the market you are looking at..ie…inner city urban area ( safe, high demand) might yield 7 or 8%
Regional area with low demand or high vacancy might yield 12 or 15%It also goes in cycles depending on how the commercial market is travelling at the time, therefore yields change as the state of the market changes.
There are probably better indicators to use with residential property than stright out “yield” as the yield does not take into account outgoings that the owner pays which can vary considerably from property to property and area to area.
Maybe you need to use gross yield and nett yield with residential property to get a better indicator of the performance of your property..
(whew…where did all that come from ???)
KP
))
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