How to calculate rental yield on a property
Posted on 23. Mar, 2010 by Karen Herbert in Other
When buying investment property, one of the important figures to look at is the net return on the money you’ve invested, also known as the net rental yield.
Investors should assess the net return and compare it to the average returns available on other properties when deciding whether to proceed.
Too low a return may mean that alternative investments should be reviewed, while a very high relative yield may mean there is an accompanying risk factor that’s higher than normal, PK Property Search and Negotiators advises.
Areas that produce lower yields predominately have a higher capital gain, which might be the ultimate aim.
The yield is calculated by starting with the purchase price. This is the denominator. The numerator is your net yearly income.
To figure out the net income you take your yearly gross rent and subtract your outgoings. Outgoings for residential properties include management fees paid to the letting agent, council and water rates for the year, estimated repairs, maintenance and strata levies and land tax if applicable.
You should set aside a yearly amount for repairs and maintenance, since big expenses occur periodically and not necessarily yearly.
When investing in property plan to hold the property a minimum of five years. This accounts for economic cycles and changing conditions.
Written By: PK Property Search and Negotiators
Source : Australian Property Investor (October 2009)
Karen Herbert is the Principal of Position One, based in Brisbane, Australia. For further information or help with renting out and managing your property, please visit the Position One website.
