A yield is only based on income, whereas a return includes capital gains

What return will the property will give YOU, Property Investor – in other words, its yield.

Before starting to look seriously at a property, most investors work out the yield on the property to see if it makes their shortlist. Although some investors buy property for other reasons – landbanking, infrastructure potential or lifestyle reasons – most are only concerned with its current return and potential yield.

Before we get into the complexities around yields and how to work these out, it’s helpful to understand the different terms.

Investment terms explained

Yield – A yield is a measurement of future income on an investment. It is generally calculated annually as a percentage, based on the asset’s (or investment’s) cost or market value. It has nothing to do with a capital gain on a property.

Gross yield – If you think about your ‘gross earnings’, then you are on the right track. A gross yield is the income on an investment prior to expenses being deducted. For property, these expenses can be quite substantial so there can be a huge difference between gross and net yield.

Net yield – As you can expect from above, the net yield is the income on an investment after expenses have been deducted. The costs and expenses could include purchasing and transactions cost. For example stamp duty, legal fees, pest and building inspections, loan start-up fees and vacancy costs, including lost rent and advertising. There might also be repairs and maintenance costs, management fees, insurance, rates and charges. Most of time, these costs won’t be known so you will have to estimate these.

Return or total return – Also quoted as a percentage, a return includes capital gains. It is the gain or loss of the investment in a particular period (this isn’t necessarily annual as for yields). This is retrospective, so it is generally an accurate or concrete percentage.

Average yields – It is always good to know what the average yield is for the area that you are looking to invest in, but every property is different. Don’t take these as gospel as to how much yield you may get on your property. What is the difference between yield and return?

As explained in the definitions above, a yield is only based on income, whereas a return includes capital gains. Although both might be used in the sales patter, find out the time frames of both before making any decisions on whether the property you are looking at is a good investment.

Remember, though, one is retrospective (return) and the other looks at the future (yield).

A yield is only based on income, whereas a return includes capital gains

How do you work out a yield?

When looking for investment property, you will notice agents dropping in comments on yields. What you have to be aware of is that most of them will be referring to the ‘gross’ yield and not the ‘net’ yield. Make sure you ask which one they are quoting. It is also worth knowing how to work out the gross and net yield of a property so you can calculate them.

Gross yield = annual rental income (weekly rental x 52) / property value x 100

For example: Property purchase – $450,000 Weekly rent – $375 ($375 x 52) = $19,500 /$450,000 x 100 = 4.3%

Net yield = annual rental income (weekly rental x 52) – annual expenses and costs/ property value x 100

For example: Property purchase – $450,000 Weekly rent – $375 Annual expenses – lost rent and advertising $1,075, repairs budget $600, insurance $1200 = $2875 ($375 x 52) = $19,500 – $2875 / $450,000 x 100 = 3.69%

What does a ‘hard’ or ‘soft’ yield mean?

Demand for property drives property prices up and this can affect the yield of your investment property. The more prices go up, the less the percentage between rents (income) to property value. When you hear people referring to yields hardening, this means the yield falls or reduces, whereas when they refer to yields softening, this means they are increasing or rising.

Brisbane Buyers Agent & Investment Property Sales & Management Specialist

 

 

Yield Calculator

 

 

Advertisements

About ljgrealestate 据联大

Removing the Hassle from Sales and Rentals across South East Queensland. Aim to Empower other like minded Property Investors. L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Carlos and Linda Debello offer property investor's the confidence to sell and lease in any market. We provide comprehensive market appraisals, exclusive multimedia marketing campaigns, and knowledgeable, highly personalized counsel on all aspects of real estate. Our Property Management Team is equally considerate, offering investors with in-depth advise, well-researched rental valuations, and highly professional rental management services. http://goanimate.com/movie/0M4bvcZzgIbI?utm_source=linkshare&uid=0u6RGtWsmlVc Carlos’ direct mobiles are 0400 833 800 & 0413560808. Linda’s mobiles are 0409995578 & 0414978700 (prefer email contact for Linda). Office 07 3263 6085. http://www.ljgrealestate.com.au http://www.yellowpages.com.au/qld/aspley/lj-gilland-real-estate-pty-ltd-14091356-listing.html http://au.linkedin.com/in/lindajanedebello http://twitter.com/GillandDebello http://www.facebook.com/pages/ljgrealestate
This entry was posted in Australia, Brisbane, ECONOMIC OUTLOOK, ECONOMY FINANCE BUSINESS LJGREALESTATE RENTALS PROPERTY SALES PROPERTY INVESTOR PROPERTY MANAGEMENT, Empowerment, finance, Foreign Investment, GDP, LJ Gilland Real Estate Pty Ltd, ljgrealestate, Maintenance Renovating tips Construction Home Staging Property Sales Property Management Property Investor Builders Developers Rentals Sales Tenance, MT ISA, Negative Gearing, NRAS, property investor, propertymanagement, Queensland, Real Estate, rentals, rentals sales and tagged , , , , , , , , , . Bookmark the permalink.