I’ve just finished reading an article in the /Resources/Freebies/ section called “No Money Down Strategies” and it refers to Rental Yield on page 2, and then states “In theory a borrower could purchase an infinite number of properties as long as the yield is 7.43% or above”.
Can someone clarify for me – how would the yield be calculated?
Cheers
CroccoPresumably annual rental/property value
There was an article recently in API which gave a figure of approx 8.8% yield – this was when interest rates were about 6%, and allowing 2.8% for other costs. Can’t recall what % LVR that was for – 80, 90 or 100%?
Now interest rates are higher, surely the required yield would have to be over 9% now?
Peter
weekly rent x 52 divided by purchase price x 100.
ie $200 x 52 divided by $180 000 x 100 = 5.77%.
Hope this helps.
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Crocodile, that most proably won’t work with the interest rates at 7% and above.
Matt
“If you do what you have always done, you will get what you have always had.”
“Isn’t it time for a change?”
Hi,
The key is to find reasons why/how it will rather than be resolved that it won’t.
The idea is that, provided (1) you had access to unlimited finance, (2) you could meet the cost of additional borrowing from profits, and (3) the properties were +ve cashflow, you could continue to buy because you’d always be making profits.
The problem is that more debt means higher risk.
Hope this has helped to clarify the issue.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hey Crocodile,
This might be important to you, as your a newbie on here, but knowing what the yeild on a particular property is not that quite importan, as it does not give a clear idea of what the exact cash return is, this is also the same for CoCR, if you want a true but more accurate return, you should be working out your IRR as this gives a much more clearer indication, and of what the property can expect in the few new years of what new true returns will be achieved.
cheers
s.i.sHi Guys, and thanks for your replies.
I’m much clearer now about yield – cheers.
I really like the idea of an indicator to unlimited properties! Lucky I have a risk-adverse other half to keep me in check sometimes.[
]Seriously though, we’re struggling with repayments on a property at the moment, which will be positive cash flow, once the drought breaks, and the cattle fatten, and we heal the salt scald, and the birds stop flying backwards, and, and…..
So I’m really sold on +ve cash flow – where it flows from day one!
Crocco
Simon AKA mortgagehunter
weekly rent x 52 divided by purchase price x 100.
ie $200 x 52 divided by $180 000 x 100 = 5.77%.
So this can be used to work out the yield on current IP’s ?
i.e
$145 (weekly rent) X 52 = $7540
divided by $80 000 (amount owing on loan- not value)0.09425
X 100 = 9.425% Yield
Is this correct also ..??
REDWING
Hi Redwing,
Mortgage Hunter is correct.
Yield: Rental Income divide by purchase price timse by 100
And your formula you did is correct, though caculating yield is no good as, it does not take into account how much cash you put in.
Better to use CoCR or IRR, both these will give a much better result and more accurate answer.
Cheers
s.i.sS.I.S
Thanks, i’ve been e-mailed a COCR calculator from this site,transfered it to disk, but not on-line and not on the computer very much at all at home, one day when i’m not busy ( Ha Ha Ha.. yeh right) i’ll have to look at it.
At work at the moment, log in every now and again to ‘learn’ from this site.
Hope you all had a great XMAS
REDWING
When doing the calcs don’t forget to take into account all the expenses ie rates, land tax, insurance, R&M, etc. Also allow for interest rates to rise, and allow for some vacancies. Budgeting on a best-case scenario is a recipe for disaster unless the Gods are smiling very sweetly upon you.
Good luck, JulianI’ve just come across an article in the latest API, (Brenda & Les Irwin, pp 32-38) where Brenda says:
“In my experience, it takes approximately 2.5% – 3% of your gross yield to pay outgoings. For example, if your interest rate is 7% you’ll need a gross yield of at least 10% (7% + 3%) to guarantee a cashflow neutral return (before tax).
Brenda ‘fully borrows’ to finance their purchases.
For me this statement had the aha! affect – so that’s the relationship between the rental yield and cashflow returns! Yes, I’ve been reading up, following this and other threads about yields, but just couldn’t grasp the connection. [:0)]
Cheers,
CroccoCrocodile, wanna reduce your expenses from around 3% to almost zero %??? Sell your residential props and buy commercial. Your lovely tenant will not only pay all your expenses, but they have a vested interest in keeping the place looking great as well!!!! The only downside for well located commercial/industrial properties is the fact the banks are little less generous with their lending. But that’s just another opportunity to get creative, isn’t it?
Cheers, Julian.Other downsides of commercial property include extended vacancy rates, lower capital growth and less liquidity than residential.
I am not saying they are a bad investment but they are quite different than residential and should be well understood before one ventures in.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Croc,
Generally, you will only have access to “unlimited finance” if you are also working as a wage-earner. The banks will tell you that you are too “rent-reliant” if you rely solely on rental yields to repay increasingly heftier mortgages. don’t give up your day job yet!
kay henry
Hi,
I know these feeds are rather old but I guess the information is still relevant. Hopfully someone can help me out…thats if this feed is not too told…
I am very new to property investing, Steve has totally changed my thinking and what I've been taught (negative hearing) in the past.
I am 26 years old, and still very fresh and new to all of this and still trying to wrap my head around investing terminology. Can someone please explain to me what is the best way to calculate a positive geared investment? I understand that there are a number of variables that come in to play, however I'd like to know if there is a quick formula I can follow if and when I find a good deal. My understanding is that you cant really tell too much from the rental yield percentage as that does not give you a clear idea of what the exact cash return is (including paying interest)
Hope to hear from someone soon.
Cheers!
Calculate by 52.14, not 52. The extra coinage may make a difference.
]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
