Key Investment Tools: Yield

14th October, 2015
  • In real estate, yield is a term that refers to the amount of future income that an investor can expect a property to produce. Most often the yield is calculated as an annual figure and is represented as a percentage.

    Understanding what kind of yield to expect from a piece of property is an important thing for an investor to be aware of to make strong investment choices.

    There are in fact two different types of yield that all overseas investors should be aware of;

    • Gross Yield – Gross yield refers to the total earning potential that a property can produce. It is important to understand the total amount of money that a property can produce to weigh it against the cost of maintaining it.
    • Net Yield – The net yield refers to the actual amount of income that a property will produce for an investor after taking maintenance expenses into account. For properties, which may require inspections, incur legal fees, vacancy fees, and repairs, these expenses can be quite large, and sometimes negative, so calculating the net yield is extremely important.

    Calculating a Yield

    To calculate the gross yield, you take the annual income from rent, which is the weekly rent multiplied by 52 and divide that by the property value multiplied by 100. The formula looks like this:

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

    So if your rent is $400 per week, and the value of the property is $500,000, then the equation would work out like this:

    $400 x 52 = 20,800/$500,000 x 100 = 4.2%

    The net yield simply subtracts the expenses from the annual rent. So our new equation would look like:

    Net yield = Annual rent – expenses (weekly rent x 52 – annual expenses)/ property value x 100

    So if our expenses were $3,000, to calculate the net yield you would do this:

    20,800 – 3,000/500,000 x 100 = 3.56%

    This give you a below county average yield of 3.56%.


    by: Prime Asset Investments

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