learning how to correctly calculate property yields is one of the most beneficial need-to-know basics of successfully investing in property.
Too many investors dive into purchasing a property without actually knowing how much the property is going to pay them. Something might sound like a killer deal, but when you run the figures you might soon realize it’s not worth your time or your money.
There are two ways to work out your property yields
GROSS YIELD
To Calculate the gross yield of a property is really simple. It’s the yearly rental income divided by the purchase price. You then times it by 100 to give you the percentage. For example:
yearly rental income = £10.000
Purchase price = £100,000
10,000 / 100,000 = 0.10 x 100 = 10%
This is the simplest calculation you can do and will give you a good indication of whether the property you’re looking at is a good investment.
But there’s another way that’ll give you a more detailed view.
NET YIELD
The net yield will give you a bit more of a realistic view of the deal and this is the one you should work with. It's still a simple calculation but this time you include the expenses like mortgage and insurances etc
If your property has expenses of £3,500 each year,
Annual rental income = £10,000
Property expenses = £3,500
Total = £6,500 (this is your rental income £10,000 minus your expenses £3,500)
Purchase price = £100,000
6,500 / 100,000 = 0.065 x 100 = 6.5%
However, there’s still one more calculation that you should run…
Calculating your return on investment (ROI)
Your ROI is the yearly profit divided by your initial investment
Here is another example :
Annual rent = £7,000
Annual costs = £2,000
Annual profit = £5,000
Purchase price = £100,000
Mortgage used = £75,000
Cash invested = £25,000
The calculation here is 5,000 / 25,000 = 0.2 x 100 = 20%
Your return on cash invested is 20%
Which calculation should I use?
Well, it all depends on whether you plan to buy a property with cash or a mortgage. This gives a true reflection on the deal as a whole
It might also depend on your strategy your using
These calculations are essential for you to learn as a property investor always know your numbers
These might seem like simple calculations but they are all you really need when investing in property
Now if you still need assistance on choosing a strategy that suits you best or when and where to use these calculations book your free strategy call today @
Hope you all have magical Christmas and a happy new year
Happy investing