Hi All,
When calculating the return yields for my investment property, do i just take rent collected/purchase price.
Say, i bought this property at $400K, renting at $350/week.
Yield = ( $350 x 52 ) / $400k = 4.55%?
Do i have to include the mortgage interests incurred over 25 years?
Ta
Cheers
NitNo. Everyone's cost of borrowing is different – neither finance nor tax/depreciation enter the equation.
You should be working with net yield not gross that way you can compare different asset classes/investments ie how would you compare a share returning 5% capital growth & 4% dividends (fully franked) with the property example above? Very difficult.
There are plenty of free spreadsheets around which will help you calculate the net yield (just search the forum for spreadsheet), alternately you can use software such as PIA for a full detailed analysis, although this will cost you a few hundred dollars.
Hi Nit,
Personally, I like to use effective cash yield… ie:
Net rent (=Total rent minus all cash costs (rates, strata, agent's fees etc))
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Property Purchase Price.Don't include any of the interest costs as yield is usually a measure of the income that an asset produces by itself.
Nothing irritates me more than seeing properties that "yield" at 9%, oh yeah, there are a stack of fees in there so the effective cash yield is actually 4!
don’t forget your depreciation schedule, that will push your ROI higher.
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