What is the yield of a property and how do you calculate it?
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It's a very simple calculation, but it's important for being able to compare property returns.
What is the yield of an investment property?
Property investors use the term a lot.
Rental yield measures the profit you generate each year from your investments as a percentage of its value/price.
A property investor uses rental yield to evaluate and compare property investments.
A high rental yield usually equates to a greater cash flow.
Rental yield can be either:
Gross: Annual rental income divided by property cost or value.
Or Net: Including all the expenses involved.
Yield is important as it allows you to compare different properties and decide which will work for your investment strategy.
Here is how you calculate the gross yield of a property
1. Add up your total annual rent that you would charge the tenant
2. Divide the annual rent by the value of the property
3. Multiply that figure by 100 to get the percentage of your gross rental yield
Here’s an Example:
A property costs $550,000 to purchase and rents for $675 per week.
Annual rent is $35,100 ($675 per week X 52 weeks of the year)
Divided by the cost/value of $550,000
$35,100 / $550,000 x 100 = 6.38
Gross Yield is 6.38 percent.
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