How do you work out the rental yield on a property?
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IF you’ve considered purchasing an investment property you may have seen the term rental yield. This is a comparative used against other potential purchases to assess whether a property has a good income return.
There are two types of rental yield – gross rental yield and net rental yield. The easiest to work out is the gross as it is the weekly rental amount x 52 (annual income) and the purchase price or current market value of the property. The calculation process is annual income divided by the property value = $ and x 100. Example: a property achieving $400 per week in rent, currently valued at $400,000 = $400 x 52 = $20,800 divided by $400,000 = 0.052 x 100 = 5.2% gross yield.
To calculate the net yield you would try to include all the purchasing costs, ongoing running costs, management costs into the property value. This could be (example) a total of $450,000, reducing the yield.
$20,800 divided by $450,000 = 0.046 x 100 = 4.6% net yield.
This is a guide only, always seek the advice of an accountant before purchasing an investment.
Hope this helps,