Property Yield
Property yield is how much, or the return on investment you will make when
purchasing a property. Let’s look at a simple rental yield calculation. Say you
purchase a property for $100,000 and you receive a rental income of $200 a week.
This is the yield calculation
$200 x 52 (weeks in year) = $10,400
($10,400 / $100,000) x 100 = 10.4% yield
That is the basic way to calculate rental yield on a property. This however does
not include any factors such as maintenance costs or land taxes / rates.
Let’s do a more realistic yield calculation
We take out an 85% mortgage to pay for
the house.
We put in $15,000. We also add $5,000 for additional settlement and taxes.
Our interest rate is 8.00% p.a. So our mortgage repayments are $175.68 per week
over a 25 year period.
Our gross annual profit is
$200 x 52 = $10,400
And the yield is
($10,400 / $20,000) x 100 = 5.2% yield
The yield calculation is only a measurement of the cash flow and invested money
within the property. Why comparing this with a yield from the stock market
differs is a property investment makes you more money than just the yield
because of the capital growth of the property. So rental yield is only a single
factor in determining which property to buy, but it is a good indicator of the
cash flow which is a critical when managing your investments.