Most people who buy a property often want to know the return they will get in the future. This is referred to as the yield. Some investors are interested in the current return while the others are more particular about the potential yield.
A yield is the amount of annual return an investor or homeowner gets on his or her property. In short, it refers to the future income of an investment. It is measured through the rental income of a property in a year and is expressed as a percentage of the property’s cost or market value. Yields can be the gross yield or net yield.
Gross Yield
A gross yield is the income on an investment before the expenses are deducted. These expenses can vary and for a property, the amount involved can be huge.
Net Yield
The net yield, on the other hand, is the investment property’s income after the expenses have been deducted. The expenses here can involve the cost of purchasing and other transactions such as stamp duty, legal fees, building inspections, loan start-up fees, repair costs and vacancy costs. Running costs should also be taken into account and these include ground rents, service charges, buildings and contents insurances.
In addition to the gross and net yields, you may also hear people mentioning hard and soft yields. A yield can harden if it falls or lowers while a yield can soften if it increases. Take note that a yield on an investment can be affected as property prices go up. As prices increase, the percentage between income to the property’s value decreases.
As a property investor or homeowner, it is best to understand what a yield and is how to calculate the gross and net yield.
Gross yield = annual rental income/property value X 100
Net yield = annual rental income minus annual expenses and costs/property value X 100
The rental income is computed by taking into account the weekly rental X 52.
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By Wendy Chamberlain
Copyright 2018 | All Rights Reserved
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With a passion for all things real estate spanning 18 years, Wendy loves that her role as a Buyers Advocate gives her buyers an experienced voice they can trust when it comes to negotiating to purchase something as important as their new home or investment. Wendy considers it a privilege to be asked to help others realise such an important goal as home ownership and to be trusted with that honour. Get in touch today via www.FollowWendy.com for a no obligation chat about how Wendy can work with you and help you save time and money to secure your new home sooner.
